The Export Administration Act: Evolution, Provisions, and Debate
Prepared for Members and Committees of Congress
The 111th Congress may consider legislation to renew, modify, or reauthorize the Export th
Administration Act (EAA). In the 110 Congress, several pieces of legislation were introduced
that addressed various aspects of the current system, including penalties, enforcement, diversion
or transhipment of goods, and the integration of export control data into the Automated Export
System, yet no comprehensive reauthorization or reform was attempted. Through the EAA,
Congress delegates to the executive branch its express constitutional authority to regulate foreign
commerce by controlling exports. The EAA provides the statutory authority for export controls on
sensitive dual-use goods and technologies: items that have both civilian and military applications,
including those items that can contribute to the proliferation of nuclear, biological, and chemical
weaponry. The EAA, which originally expired in 1989, periodically has been reauthorized for
short periods of time, with the last incremental extension expiring in August 2001. At other times
and currently, the export licensing system created under the authority of EAA has been continued
by the invocation of the International Emergency Economic Powers Act (IEEPA). EAA confers
upon the President the power to control exports for national security, foreign policy or short
supply purposes. It also authorizes the President to establish export licensing mechanisms for
items detailed on the Commerce Control List (CCL), and it provides some guidance and places
certain limits on that authority. The CCL currently provides detailed specifications about dual-use
items including equipment, materials, software, and technology (including data and know-how)
likely requiring some type of export license from the Commerce Department’s Bureau of Industry
and Security (BIS). BIS administers the Export Administration Regulations (EAR), which, in
addition to the CCL, describe licensing policy and procedures such as commodity classification,
licensing, and interagency dispute resolution procedures.
In debates on export administration legislation, parties often fall into two camps: those who
primarily want to liberalize controls in order to promote exports, and those who believe that
further liberalization may compromise national security goals. While it is widely agreed that
exports of some goods and technologies can adversely affect U.S. national security and foreign
policy, some believe that current export controls can be detrimental to U.S. businesses and to the
U.S. economy. According to this view, the resultant loss of competitiveness, market share, and
jobs can harm the U.S. economy, and that harm to particular U.S. industries and to the economy
itself can negatively impact U.S. security. Others believe that security concerns must be
paramount in the U.S. export control system and that export controls can be an effective method
to thwart proliferators, terrorist states, and countries that can threaten U.S. national security
interests. Controversies have arisen with regard to particular exports such as high performance
computers, encryption technology, stealth materials, satellites, machine tools, “hot-section”
aerospace technology, and the issue of “deemed exports.” The competing perspectives on export
controls have clearly been manifested in the debate over foreign availability and the control of
technology, the efficacy of multilateral control regimes, the licensing process and organization of
the export control system, and the economic effects of U.S. export controls. This report will be
Introduc tion ..................................................................................................................................... 1
The Evolution of the Export Administration Act.............................................................................1
Analysis of Provisions in EAA Legislation.....................................................................................7
Types of Control Authority.......................................................................................................7
National Security Controls..................................................................................................7
Foreign Policy Controls......................................................................................................8
Short Supply Controls.........................................................................................................9
The Control List and Licensing Procedures..............................................................................9
Commerce Control List.....................................................................................................10
License Review Procedures...............................................................................................11
Issues Concerning IEEPA.......................................................................................................12
Technology and Commodities of Concern....................................................................................13
High Performance Computers (HPCs)....................................................................................14
Encryption ..................................................................................................................... .......... 15
Stealth Technology and Materials...........................................................................................15
Satellites .................................................................................................................................. 16
Aerospace ................................................................................................................................ 16
Civil Aviation Equipment........................................................................................................17
Competing Perspectives in the Export Control Debate.................................................................18
Foreign Availability and the Controllability of Technology.............................................19
The Effectiveness of Multilateral Regimes.......................................................................21
China .......................................................................................................................... ....... 22
The “China Rule”..............................................................................................................23
The Licensing Process and Organization of the Export Control System..........................25
Author Contact Information..........................................................................................................26
Legislation to rewrite and reauthorize the Export Administration Act of 1979 (EAA)(P.L. 96-72) thth
may be considered in the 111 Congress. In the 110 Congress, several pieces of legislation were
introduced that addressed various aspects of the current system, including penalties, enforcement,
diversion or transhipment of goods, and the integration of export control data into the Automated
Export System . The EAA provides the statutory authority for export controls on sensitive dual-
use goods and technologies, items that have both civilian and military applications, including
those items that can contribute to the proliferation of nuclear, biological and chemical weaponry.
The EAA, which originally expired in 1989, periodically has been reauthorized for short periods
of time, with the last incremental extension expiring in August 2001. At others times, including
currently, the export licensing system created under the authority of EAA has been continued by
the invocation of the International Emergency Economic Powers Act (IEEPA)(P.L. 95-223).
The EAA is the statutory authority for the Export Administration Regulations (EAR), which are
administered by the Bureau of Industry and Security (BIS) located in the Department of
Commerce. These regulations establish the framework for regulating exports of dual-use,
potentially sensitive commodities, software, computers, and technology. Exports are restricted by
item, country, and recipient entity. The EAA, which was written and amended during the Cold
War, focuses on the regulation of exports of those civilian goods and technology that have
military applications (dual-use items). Export controls under the EAA were based on strategic
relationships, threats to U.S. national security, international business practices, and commercial
technologies many of which have changed dramatically in the last 20 years. Some Members of
Congress and most U.S. business representatives see a need to liberalize U.S. export regulations
to allow American companies to engage more fully in international competition for sales of high-
technology goods. Other Members and some national security analysts contend that liberalization
of export controls over the last decade has contributed to foreign threats to U.S. national security,
that some controls should be tightened, and that Congress should weigh further liberalization
This report discusses the Export Administration Act in terms of its evolution in the 20th century,
its major features including the types of controls authorized by the act, the Commerce Control
List and export licensing procedures, and issues concerning the maintenance of export controls
under IEEPA. It then highlights several controlled commodities that have been featured
prominently in export control discussions. Finally, it discusses competing business and national
security perspectives concerning several of more contentious themes in the export control debate:
the controllability of technology, the effectiveness of multilateral control regimes, the
organization of the export control system, and the impact of export controls on the U.S. economy
Export controls in time of war have been an element of U.S. policy for almost one hundred 1
years. The end of WWII, however, ushered in a new era in which export control policy would
1 In the first half of the 20th century, war, or the imminent threat of war, led to the Trading With The Enemy Act of
1917 and the Neutrality Act of 1935. In 1940, Congress increased presidential power over the export of militarily
become an extensive peacetime undertaking. The start of the cold war led to a major refocusing of
export control policy on the Soviet-Bloc countries. Enactment of the Export Control Act of 1949
(P.L. 81-11) was a formal recognition of the new security threat and of the need for an extensive
peacetime export control system.
The 1949 Act identified three possible reasons for imposing export controls. Short-supply
controls were to be used to prevent the export of scarce goods that would have a deleterious
impact on U.S. industry and national economic performance. Foreign policy controls were to be
used by the President to promote the foreign policy of the United States. The broad issues of
regional stability, human rights, anti-terrorism, missile technology, and chemical and biological
warfare have come to be controlled under this rubric. National security controls were to be used
to restrict the export of goods and technology, including nuclear non-proliferation items, that
would make a significant contribution to the military capability of any country that posed a threat
to the national security of the United States.
Coincident with the establishment of the post-war U.S. export control regime was the
establishment of a multilateral counterpart involving our NATO allies. The large amount of
critical technology being transferred from the United States to the NATO allies, and the growing
capability for technological development by the allies themselves required the establishment of a
multilateral control regime. Toward this end, the Coordinating Committee for Multilateral Export
Controls (CoCom) was established in 1949. CoCom controls were not a mirror image of U.S.
controls but generally did reflect a uniformly high level of restrictions.
With little change in the perceived threat, the Export Control Act was renewed largely without
amendment in 1951, 1953, 1956, 1958, 1960, 1962, and 1965. With the onset of the U.S.-Soviet
era of “detente” in the late 1960s, however, the first serious reexamination and revision of the
U.S. export control system occurred. At this time, the growing importance of trade to the U.S.
economy and those of our allies began to exert significant political pressure for some
liberalization of export controls. Congress passed the Export Administration Act of 1969 to
replace the near-embargo characteristic of the Export Control Act of 1949. The continued shift of
policy toward less restrictive export controls continued in the renewal of the act in 1974 and
1977. The act was comprehensively rewritten in 1979, and this act forms the basis of the export
control system today. It was amended in 1985, and some moderate further liberalization occurred
in the following years.
The collapse of the Soviet Union in 1989, an event some have partially attributed to the success
of U.S. cold war export control policy, marked a dramatic change in the nature of the external
threat the United States. Beginning with the George H.W. Bush Administration, the export control
system has been reduced in scope and streamlined, but the basic structure of the law remains
intact. There are many who see a need to revamp the act, whether to enhance exports, to shift the
focus to current national security threats, or to increase penalties for violations.
The dissolution of CoCom in 1994 and its replacement by the Wassenaar Arrangement in 1997, 2
also significantly changed the export control environment. This new multilateral arrangement is
significant goods and technology with the passage of P.L. 76-703, “An Act to Expedite and Strengthen the National
Defense.” In each of these instances the rationale for control was the necessity of not giving aid and comfort to the
2 For details on Wassenaar, see CRS Report RS20517, Military Technology and Conventional Weapons Export
more loosely structured than CoCom and members do not have the authority to block transactions
of other members. Generally more liberal control practices abroad raise important questions about
the ultimate effectiveness of U.S. export controls (under either the current or a revised EAA) in
achieving national security objectives and the fairness of unilateral controls to American industry.
Congress has not been able to agree on measures to reform the Export Administration Act that st
regularly have been introduced since the 101 Congress. The export control process was
continued from 1989-1994 by temporary statutory extensions of EAA and by invocation of the
International Emergency Economic Powers Act (IEEPA). Thereafter, export controls were
continued for six years under the authority of Executive Order No. 12924 of August 19, 1994,
issued under IEEPA authority. Many of those who favor reforming the act, whether to liberalize
or to tighten controls, contend that operating under IEEPA imposes constraints on the
administration of the export control process and makes it vulnerable to legal challenge, thus
undermining its effectiveness. Legislation passed by the House and Senate and signed by the
President on November 13, 2000 (P.L. 106-508) extended the EAA of 1979 until August 20,
Since then, export control authority has again been operating under IEEPA provisions pursuant to 3
Executive Order 13222, issued August 17, 2001.
Legislation to rewrite the Export Administration Act has been introduced in the last several th
Congresses. In the 104 Congress, the House passed the Omnibus Export Administration Act of
1996 (H.R. 361) on July 16, 1996, after hearings and consideration by the Committee on
International Relations, the Committee on Ways and Means, and by the Committee on National
Security. On July 17, 1996, the bill was received by the Senate and referred to the Committee on
Banking, Housing and Urban Affairs, which held a hearing but took no further action. Export th
control legislation (H.R. 1942) was introduced in the 105 Congress, but no action was taken. In th
the 106 Congress, the Export Administration Act of 1999 (S. 1712) was introduced by Senator
Michael P. Enzi. On September 23, 1999 the Senate Banking Committee voted unanimously (20-
0) to report this legislation to the Senate floor (S.Rept. 106-180). However, action by the Senate
on S. 1712 was not taken due to the concerns of several Senators about the bill’s impact on
Export control legislation was again introduced in the 107th Congress. On January 23, 2001,
Senator Enzi introduced the Export Administration Act of 2001 (S. 149). Hearings were held on
this legislation by the Senate Banking Housing and Urban Affairs Committee in February 2001,
and the measure was reported favorably for consideration by the Senate by a vote of 19-1 on
March 22, 2001 (S.Rept. 107-10). The Senate debated the legislation on September 4-6, 2001,
and it passed with three amendments by a vote of 85-14. This bill was similar though not identical th
to S. 1712, introduced by Senator Enzi in the 106 Congress.
Controls: The Wassenaar Arrangement, by Richard F. Grimmett.
3 IEEPA provisions are renewed yearly through Presidential determination, the most recent being on July 23, 2008, and
contained in 73 Federal Register 43601 (July 25, 2008).
The House International Relations Committee held hearings on EAA and export controls on May
was introduced on July 20, 2001 by Representative Benjamin Gilman. As introduced, it was
identical to S. 149, except for the additions of provisions related to oversight of nuclear transfers
to North Korea. At the markup session on August 1, the House International Relations Committee
passed the legislation with 35 amendments. The House Armed Services Committee (HASC) and
the House Permanent Select Committee on Intelligence(HPSCI) received H.R. 2581 through
sequential referral. On March 6, 2002, HASC further amended H.R. 2581 and reported out the
legislation by a vote of 44-6 (H.Rept. 107-297). HPSCI held hearings on the legislation but did th
not alter it. The legislation received no further consideration in the 107 Congress. The th
Administration supported S. 149 and opposed House attempts to revise it. In the 108 Congress,
Representative Dreier introduced EAA legislation (H.R. 55), which was identical to S. 149, but
no action was taken on it.
The National Defense Authorization Act (NDAA) has also been used periodically as a vehicle to
attempt to amend the export control regime. In 2004, the House version of NDAA 2005 (H.R.
4200) contained two export control-related provisions that would have affected dual-use export
controls. The first (Sec. 1404) would have required a license for dual-use goods controlled under
the Export Administration Regulations (EAR) for technology and items contained in the
Militarily Critical Technology List (MCTL), a list compiled by the Department of Defense
(DOD) (see p. 6). The provision is in response to a March 2004 DOD study, which noted that
several MCTL technologies were not controlled under the EAR or the International Traffic in
Arms Regulations (ITAR). The second provision (Sec. 1405) would have required that exporters
obtain licenses for items controlled under the EAR or the ITAR to a destination if that destination
had previously exported such items to China. In addition, the granting of the license would be
conditional on the written assurance of the foreign government or entity not to transfer the
licensed item without the written consent of the President. The House NDAA report (H.Rept.
108-491) expresses concern that military embargoes on China imposed after the Tiananamen
Square massacre may be repealed which may lead to the transfer of such U.S. goods or
technology to China. However, neither of these provisions were contained in the conference
report (H.Rept. 108-767) signed by the President on October 28, 2004.
In the 109th Congress, a bill to revise and extend the Export Administration Act was introduced by
Representative Henry Hyde on December 16, 2005, and was referred to House International
Relations Committee. It was not a comprehensive overhaul of 1979 EAA, but rather one that
addressed penalties, enforcement, and the relation of the United States to multilateral control
regimes. According to an administration official, the legislation reflected “targeted changes ... that 4
all sides can be supportive of.” The bill also would have extended the expired EAA for two years
from the date of enactment, and provided authorization of appropriations for export control th
activities. This bill did not receive consideration in the 109 Congress.
4 Peter Lichtenbaum, former Assistant Secretary for Export Administration, “Administration Will Press Congress to
Renew EAA, but no Major Reform in Sight,” International Trade Reporter, January 19, 2006.
No comprehensive legislation to rewrite or reauthorized the EAA was introduced in the 110th
Congress. Legislation was introduced that sought amend the enforcement and penalty structure of
the Act, to integrate export control information into electronic filing of export data and to target
countries of diversion concern. On August 3, 2007, Senator Dodd introduced the Export
Enforcement Act of 2007 (S. 2000), which was referred to the Senate Banking Committee. This
bill reflects the draft legislation that the Administration submitted to Congress on April 24, 2007.
The draft bill would reauthorize the Export Administration Act for five years and amend the th
penalty and enforcement provisions of the act. It was not considered during the 110 Congress.
The proposed legislation would revise the penalty structure and increase penalties for export
control violations. The bill would raise criminal penalties for individuals up to $1 million and
raise the term of potential imprisonment to ten years for each violation. For firms, it would raise
penalties to the greater of $5 million or 10 times the value of the export. Under the 1979 EAA,
the base penalty was the greater of $50,000 or 5 times the value of the export, or five years
imprisonment. Certain violations, such as those for exports controlled for foreign policy purposes
could have received higher penalties. The bill would also raise civil penalties from $10,000 (or
$100,000 for national security controls violations) under the old Act to $500,000. It would expand
the list of statutory violations that could result in a denial of export privileges. and it extends the
term of such denial from not more than 10 years to not more than 25 years.
The draft legislation would expand the authority of the Department of Commerce, Office of
Export Enforcement, to investigate potential violations of EAA overseas. It would expand
enforcement authority to other places at home and abroad with the concurrence of the Department
of Homeland Security. The proposed legislation would restate the enforcement provisions of the
EAA to account for the current structure of Customs and Border Security and the Immigration
and Customs Enforcement in the Department of Homeland Security. It would also direct the
Secretary of Commerce to publish and update best practices guidelines for effective export
control compliance programs. It also would expand the confidentiality provisions beyond licenses
and licensing activity to include classification requests, enforcement activities, or information
obtained or supplied concerning U.S. multilateral commitments. The bill includes new language
governing the use of funds for undercover investigations and operations and would establish audit
and reporting requirements for such investigations. It would also authorize wiretaps in
enforcement of the act.
The Export Enforcement Act of 2008 (Title II, H.R. 6828) was introduced by Representatives
Sherman and Manzullo on August 1, 2008. It tracks the above legislation with regard to
enforcement, except that it does not expand the confidentiality provisions as did S. 2000. It did
not address penalties, perhaps because the International Emergency Economic Powers
Enhancement Act (P.L. 110-96), signed by President Bush on October 16, 2007 , increased the
existing penalty structure (See below, Issues Concerning IEEPA).
Title 1 of H.R. 6828 sought to integrate the various licensing requirements, embargoes and data
collection rules imposed on exporters and shippers when goods leave U.S. ports into the
Automated Export System, an electronic version of the Shipper’s Export Declaration (SED) that
Customs requires exporters to submit prior to the clearance of a shipment for export. The export
control provisions of the bill centered on programming the AES to include export control data,
and providing notification to filers of possible export control issues with their exports, in order to
prevent certain improper shipments.
The issue of evasion of U.S. export controls through the diversion of sensitive goods through th
transhipment hubs was of interest to the 110 Congress. This issue first surfaced in 2006 with
reports that computer circuits exported to the United Arab Emirates were diverted to Iran, where
they were fashioned into bomb detonators and used in Iraq. This revelation initially resulted in 5
licensing requirement on UAE-based Mayrow General Trading and six other entities. However,
the focus quickly shifted to the UAE as a transhipment hub, and the status of its export control
regime. Perhaps as a means to goad the UAE into action on export controls, the BIS proposed in
February 2007 the creation of a ‘Country Category C’, which would be made up of countries of
diversion concern. Country Category C designees would face stricter licensing requirements for
products thought to have a high degree of diversion concern. No country was designated as
belonging to Category C, and the rulemaking was never completed.
Two pieces of legislation introduced in the 110th Congress sought to address the issue of
transhipment and diversion. Title III of the Comprehensive Iran Sanctions, Accountability, and
Divestment Act of 2008 (S. 3445, Dodd)(H.R. 7112, Berman) attempted to legislate the ‘Category
C’ concept with regards to diversion to Iran. It required the Administration to initiate government-
to-government contact with countries of possible diversion concern to assist in strengthening that
country’s export control system. If cooperation was not forthcoming from that country, the
Administration would be required to designate that country as a Destination of Diversion
Concern, and exports to that country would be subject to additional licensing requirements, more
stringent license review, and increased use of end-user checks. S. 3445 was reported out of the
Banking, Housing, and Urban Affairs Committee on August 1,2008 (S.Rept. 110-443), but
received no floor consideration. Its House counterpart H.R. 7112 introduced and passed under
suspension of the rules on September 26, 2008.
Title II of H.R. 6828 (Sherman, Manzullo), the Export Enforcement Act of 2008, also sought to
legislate the creation of country of diversion concern category. This legislation did not limit itself
to countries suspected of diversion to Iran but to “countries, entities, or uses of concern for
proliferation or terrorism.” The legislation specifies criteria under which a country could be
designated as a country of diversion concern, but also sets forth specific reporting and
certification requirements for Malaysia and the United Arab Emirates to avoid being cited as a
country of diversion concern.
5 General Order Concerning Mayrow General Trading and Related Entities, 71 Federal Register 32272, June 5, 2006.
Several principles and concepts have been common to the EAA and to efforts to renew and
reauthorize the legislation. Generally, these provisions set out the types of export controls
authorized (including national security, foreign policy and short supply controls), licensing
procedures, the license review process, and penalty and enforcement procedures, the latter
currently subject to IEEPA authority.
Since the 1949 Act, U.S. dual-use export controls have restricted certain items based on national
security, foreign policy, or for the effect of domestic exports on the national economy. These three
categories form the basis by which items on the Commerce Control List (CCL) (see below, p. 7)
and items subject to the Export Administration Regulations are controlled. In practice, the
preponderance of items on the CCL are controlled for both national security and foreign policy
reasons with different control standards determining the licensing policy of an item to a particular
The 1979 Act restricted the export of goods or technology that could make a significant
contribution to the military capabilities of any other country or groups of countries that would
prove detrimental to the national security of the United States. National security control items fall
under the National Security licensing requirement of the EAR. The list “Country Group D-1” 6
presently serves as the list of controlled countries. Licenses for items controlled for national
security purposes are reviewed on a case-by-case basis and are approved if it is determined the
item is destined for civilian use or would not make a significant contribution to the military 7
potential of the country of destination.
Pursuant to EAA, the goods and technology to be controlled for national security purposes are
identified by the Secretary of Defense and other appropriate agencies. The Secretary of Defense
and the Secretary of Commerce (the Secretary) are obligated by the act to periodically review and
revise the list. For this purpose, the Secretary of Defense maintains the Military Critical 8
Technology List (MCTL). The national security based control list is also consistent with the
control list of the Wassenaar Arrangement. U.S. national security controls, however, do not cover
items that are covered under nuclear, chemical, biological or missile proliferation regimes, or to
countries covered by anti-terrorism controls. These items and destinations are controlled for
foreign policy purposes.
6 This list currently includes Albania, Armenia, Azerbaijan, Belarus, Cambodia, China (PRC), Georgia, Iraq,
Kazakhstan, Kyrgyzstan, Laos, Macau, Moldova, Mongolia, North Korea, Russia, Tajikistan, Turkmenistan, Ukraine,
Uzbekistan, and Vietnam. (EAR 15 C.F.R. 740, Supplement 1).
7 EAR, 15 C.F.R. 742.4.
8 The list can be seen at http://www.dtic.mil/mctl.
Items controlled for national security purposes are subject to a foreign availability determination.
Foreign availability exists when a good is available to controlled countries from sources outside
the United States in “sufficient quantity and comparable quality” so that control of the item would
be ineffective.(Sec. 5(f)(1)(a)) The 1979 Act charges the Secretary, in conjunction with the
Secretary of Defense and other appropriate agencies, with determining on a continuing basis
whether any item currently subject to export control for reasons of national security meets foreign
availability status. Under EAA, a request to make a foreign availability determination can be
made by a license applicant or through the initiative of the Secretary. If the Secretary makes a
foreign availability determination, the item must be decontrolled, although the President can
overturn that decision with a determination that decontrolling such items would be detrimental to
the national security of the United States. In such case, the President is directed to enter
negotiations with multilateral control partners to eliminate the availability in question.
The 1979 EAA provided for the decontrol of items on the CCL determined to have foreign
availability, and it set guidance for the Secretary to make such determinations. It gave the
Secretary the ability to initiate such determinations and it provided that license applicants could
petition the Secretary to begin the determination. The Secretary’s determination of foreign
availability does not need the concurrence of other agencies, but he must submit determinations
to other agencies as the Secretary considers appropriate. The bill also created the Office of
Foreign Availability to gather data for the Secretary to make foreign availability determinations
and to report to Congress on operations and improvements on the ability to assess foreign
availability. This office no longer exists. According to one commentator, “this is, no doubt, 9
largely because substantial activity in the 1980s and early 1990s produced only meager results.”
The concept of mass market status was proposed in EAA legislation introduced in the 106th and th
107 Congress. Neither the 1979 EAA nor current regulations provides for decontrol of items
based on mass market criterion. Mass market status was defined to apply to items produced or
made available for sale in large volume or to multiple buyers. Under legislation introduced in the thth
106 and 107 Congress, the item’s manner of distribution; its conduciveness to commercial
shipping; or its usefulness for intended purposes without modification or service were also
criteria considered when determining mass market status. This feature proved to have been a
controversial part of the legislation, and was cited as a stumbling block in negotiations over the th
bill in the 107 Congress with some Members arguing that its existence would provide for
wholesale decontrol of sensitive items.
The EAA authorizes the President to control exports for the purpose of promoting foreign policy
objectives, complying with international obligations, or deterring and punishing terrorism.
Currently, foreign policy controls are in place for anti-terrorism, regional stability, crime control,
United Nations sanctions purposes, unilateral embargoes and sanctions, and non-proliferation
9 William A. Root, United States Export Controls (Fifth Edition), (Aspen Law and Business Publisher, 2006), 4-23.
objectives. This latter category includes adherence to multilateral non-proliferation agreements in
the areas of chemical and biological weapons, nuclear proliferation, and missile technology.
The EAA attaches limitations on the use of foreign policy controls. Foreign policy controls must 10
be renewed on a yearly basis. It requires the President to clearly state objectives and criteria for
controls to be reported to Congress. It directs the President to engage in negotiations to remove
the foreign availability of items controlled for foreign policy purposes, and it requires the
President to impose controls to comply with international obligations or treaties. Furthermore, it
requires a license for the export of certain items to countries that support international terrorism.
Additionally, foreign policy controls are not authorized for sales of medicine or medical supplies,
donations of food, medicines, seeds, and water resource equipment intended to meet basic human
needs, or for sales of food if the controls would cause malnutrition or hardship. Controls on sales
of agricultural products and medicines have been further amended by the Trade Sanctions Reform 11
and Export Enhancement Act of 2000 (Title IX, P.L. 106-387).
Controls based on the end-use or end-user of an item (also known as catch-all controls) are also
administered as foreign policy controls. They were introduced under the Enhanced Proliferation
Control Initiative (EPCI) of 1991, and they are contained in Part 744 of the EAR. Catch-all
controls require a license for export or reexport of any item, not just specifically controlled items,
if the applicant knows or is informed by BIS that item will be used for nuclear, missile, chemical
or biological proliferation activities. The Bureau of Industry and Security (BIS) maintains an end-12
user list of entities requiring licenses subject to EPCI. Current regulations prescribe a
presumption of denial for licenses to certain entities in Russia, China, Pakistan, India, and Israel
and to foreign terrorist organizations as designated by the Secretary of State.
The 1979 EAA authorized restriction on the export of goods and technology to protect domestic
industry from shortages of scarce materials and the potential inflationary impact of foreign
demand. Few short-supply controls remain in force; they include restrictions on exports of crude 13
oil, petroleum derivatives, unprocessed western red cedar, and the export of horses by sea. The th
EAA legislation proposed in the 107 Congress did not provide for short-supply control authority.
Within the Department of Commerce, the Bureau of Industry and Security administers the license
application process. In FY2007, BIS reviewed 19,512 applications with a total value of
approximately $52.6 billion, which included $26 billion in licenses for crude oil exports in return
for refined petroleum. The value of dual-use technology licenses, approximately $26.2 billion,
10 For a description of the full range of foreign policy controls implemented, see BIS, Foreign Policy Report 2006,
available at http://www.bis.doc.gov/news/2006/foreignPolicyReport/Default.htm.
11 See CRS Report RL33499, Exempting Food and Agriculture Products from U.S. Economic Sanctions: Status and
Implementation, by Remy Jurenas.
12 EAR, 15 C.F.R. 744, Supplement 4.
13 EAR, 15 C.F.R. 754.
represented 2.6% of total U.S. exports in FY2007. BIS approved 16,539(85%), denied 172
(1.0%), and returned 2,797 (14%) license applications. Most applications for licenses are referred
to other government agencies for evaluation, extending the length of the review process. The
average processing time for referred license applications was 28 days, down from 33 days in
FY2006. China was the largest destination for controlled goods in FY2007 with 1,841 licenses
approved with a value of $7.9 billion, approximately 14% of the value of total exports to China in
FY2007. The greatest number of approved license applications to all destinations was for thermal
imaging and light intensive cameras, accounting for 2,198 applications with a value of $138 14
The 1979 EAA directed the Secretary of Commerce (Secretary) to create a control list, known in
the Export Administration Regulations as the Commerce Control List). The CCL includes items
controlled for national security, foreign policy, and short-supply purposes. Under foreign policy
controls, it incorporates the control lists of the multilateral non-proliferation regimes to which the
U.S. adheres. The CCL currently provides detailed specifications for about 2,400 dual-use items
including equipment, materials, software, and technology (including data and know-how) likely
requiring some type of export license. The description of the item also enumerates the control(s)
applicable to the item. In many cases, items on the CCL will only require a license if going to a
particular country. In addition, items on the CCL often are eligible for license exceptions, a
practice that, while not requiring prior approval for an export, vests exporters with certain due
diligence and record-keeping requirements related to a given transaction. Yet some products, even
if shipped to a friendly nation, will require a license due to the high risk of diversion to an
unfriendly destination or because of the controversial nature of the product. The end-use and the
end-user can also trigger a restriction. The CCL is periodically updated (with the benefit of
significant input from other government agencies) to decontrol broadly available items and to
focus controls on critical technologies and on key items in which the targeted countries are
The process by which an item is placed on the CCL is known as commodity classification. This
process has engendered considerable controversy in the debate over the EAA. Under the
commodity classification process, the exporter requests from BIS a classification for an export
item if that item does not correspond to an existing CCL listing. BIS is required to refer these
requests to State and Defense under certain referral criteria promulgated in 1996. Commerce was
criticized by the General Accounting Office (GAO) for the low number of classifications the 15
agency referred and the lack of criteria for referring classification requests to State and Defense.
In a follow-up report, GAO found that out of 5,370 commodity classification requests processed
in 2005, only 10 were referred to State and Defense, and that the development of referral criteria 16
with State and Defense had not been undertaken. Because of the differing licensing
14 BIS, 2007 Annual Report, p.16. http://www.bis.doc.gov/news/2008/annreport07/bis_annual_report07.pdf.
15 See GAO Report 02-996, Export Controls: Processes for Determining Proper Control of Defense Related Items
Need Improvement, September 2002.
16 GAO Report 06-638, Export Controls: Improvements to Commerce’s Dual-Use System Needed to Ensure Protection
of U.S. Interests in the Post 9-11 Environment, June 2006.
requirements at State and Commerce, a classification decision that excludes input from State and
Defense may contribute to the export of items that, if referred, may be found to fall under the
jurisdiction of the State Department’s International Traffic in Arms Regulations.
The EAA and the implementing Export Administration Regulations (EAR) establish policies and
procedures for the review of license applications and the resolution of interagency disputes. 17
Procedures currently employed were created by Executive Order 12981, as amended, of
December 6, 1995. These procedures confer on the Secretary of Commerce (the Secretary) the
power to review and to determine the disposition of export licenses. The Departments of State,
Defense, and Energy have authority to review any licenses submitted, and the Secretary may refer
licenses to others as he deems appropriate. These agencies may waive their right to review license
applications for certain commodities or to certain destinations.
Within nine days of a license application’s registration, the Secretary must seek additional
information, refer the application to other agencies, assure the security classification is correct,
return the application if a license is not required, grant the application, or notify the applicant of
denial. In case of review by another agency, the reviewing agency must request any additional
information from the Secretary within 10 days. After reviewing the file, the reviewing agency
may request additional information which the Secretary shall promptly request from the
Within 30 days of receipt of the application, or of requested review information, the agency must
recommend approval or denial of the application, and provide regulatory or statutory justification
for a denial. If an agency fails to provide a recommendation within 30 days, the agency is deemed
to have no objection to the decision of the Secretary. However, the license application is subject
to several actions that can ‘stop the clock’ on the license application.
The 1995 Order created a three-level interagency dispute resolution mechanism. The top tier of
this structure is the Export Administration Review Board (EARB), an entity itself created by 18
Executive Order in 1970. The Board consists of the Secretary, who serves as Chair, and the
Secretaries of State, Defense, and Energy. The Chairman of the Joint Chiefs of Staff and the
Director of Central Intelligence are non-voting members. The Board may also invite the heads of
other agencies to participate as appropriate. Under the EARB is the Advisory Committee on
Export Policy (ACEP), which consists of the Assistant Secretary for Export Administration, who
serves as Chair, as well as the relevant assistant Secretaries and appropriate officials from the
agencies represented in the EARB. The Operating Committee (OC) of the ACEP is the third tier
which is made up of representatives of the departments listed above. The Chair is selected by the
Secretary of Commerce and serves as the Executive Secretary of ACEP.
The dispute resolution process begins with the OC. The Chair reviews the recommendations of
the examining departments and informs them of his decision within 14 days of the deadline for
17 EAR, 15 C.F.R. 750.4.
18 Executive Order 11533, June 4, 1970; continued by Executive Order 12002, July 7, 1977.
receiving agency recommendations. Any reviewing department may appeal the decision of the
Chair to the ACEP. An appeal may be made within five days by an appointee of the President and
must state the statutory or regulatory basis for the appeal. The ACEP members review
recommendations and information and vote on the application within 11 days of such an appeal.
Within five days of a majority decision of the ACEP, a department head of a dissenting agency
may appeal the decision to the Secretary. Within 11 days of such an appeal, the EARB must
decide by majority vote on the disposition of the application. A member of EARB may appeal this
decision to the President within five days of the application. The interagency appeal process must
be completed within 90 days of the registration of the application. However, the Order does not
set a time frame for Presidential consideration of a license decision.
BIS’s denial of an export license must be explicitly supported by the statutory and regulatory
basis for the denial, giving specific considerations and modifications that would allow BIS to
reconsider an application. An explicit appeal procedure is specified in the EAR. One possible
basis for appeal is an assessment of foreign availability (see above). If the item in question can be
shown to be readily available from a non-U.S. source in sufficient quantity and of comparable
quality then a license denial may, in some cases, be reversed. In FY2007, BIS reported that 147 19
cases were escalated to the OC, and that a further 25 were examined by the ACEP.
When the 1979 EAA first expired in September 1990, President George H.W. Bush extended
existing export regulations by executive order, invoking emergency authority contained in the 21
International Emergency Economic Powers Act (IEEPA). As required by IEEPA, the President
first declared a national emergency “with respect to the unusual and extraordinary threat to the
national security, foreign policy and economy of the United States” posed by the expiration of the
act. IEEPA-based controls were later terminated during two temporary EAA extensions enacted in 22
extension expired in August of 1994, President Clinton reimposed controls under IEEPA.
During this period, a major restructuring and reorganization of export control regulations was
published as an interim rule in the March 23, 1996 Federal Register. On November 11, 2000,
President Clinton signed legislation to extend the authority of the 1979 Act until August 20, 24
2001, when emergency controls were renewed by President George W. Bush pursuant to
Executive Order 13222. Several deficiencies have been noted in maintaining export controls
under IEEPA authority:
19 “BIS Licensing Load Grew Slowly in 2007 Despite Sharp Growth in U.S. Exports,” Export Practitioner, December
20 This section was written by Jeanne Grimmett, Legislative Attorney, American Law Division.
21 50 U.S.C. §§ 1701 et seq. See Exec. Order No. 12730, 55 Federal Register 40373 (1990). The use of IEEPA
authorities to extend expired export controls was anticipated by Congress in the legislative history of IEEPA. See
H.Rept. 95-459 at 13.
22 P.L. 103-10; P.L. 103-277.
23 “Continuation of Export Controls,” Exec. Order No. 12924, 59 Federal Register 43437 (1994); Message from the
President, September 11. 1998, “Continuation of National Emergency Regarding the Lapse of the Export
Administration Act of 1979,” Ex. Com. 10845, H.Doc. 105-303.
24 P.L. 106-508.
• The police power of enforcement agents lapsed with the EAA. Under IEEPA,
these agents must obtain Special Deputy U.S. Marshal status in order to function
as law enforcement officers, a complication that consumes limited resources
better used on enforcement.
• IEEPA does not authorize the President to limit the jurisdiction of federal courts
and thus does not permit him to extend the EAA’s general denial of judicial
review. In addition, IEEPA does not have an explicit confidentiality provision to
authorize protection from public disclosure of information pertaining to the 25
export license applications and enforcement.
• The IEEPA does not explicitly authorize the executive to implement provisions to
discourage compliance with foreign boycotts against friendly countries.
• It has been argued that the United States sends the wrong message to other
countries by not enacting appropriate legislation. Although the United States has
been urging countries such as Russia, Kazakhstan, Ukraine, and China to
strengthen their export control laws and implementing regulations, goes the
argument, U.S. export controls laws have expired and U.S. credibility is 26
diminished by its lack of a statute.
In addition, penalty authorities under IEEPA were substantially lower than under the EAA and
thus had less of a deterrent effect. However, the International Emergency Economic Powers
Enhancement Act (P.L. 110-96), signed by President Bush on October 16, 2007, raised criminal
penalties to $1 million (up from $50,000 previously) or up to 20 years’ imprisonment for natural
persons, or both. The act also raised civil penalties to $250,000 from $50,000 previously.
Equivalent penalties under the EAA limit civil penalties to $10,000, or $100,000 for violations
involving national security controls, and criminal violations to $250,000 and 10 years’
imprisonment for individuals and $1 million or 5 times the value of exports for firms.
Controversial exports have included telecommunications and advanced electronic equipment,
precision machine tools (especially computer assisted machines), guidance technology (including
Global Positioning System technology), aerospace and jet engine technology, synthetic materials
(especially high-strength, light-weight, heat- and corrosion-resistant materials), specialized
manufacturing and testing equipment (including mixers, high temperature ovens, heat and
vibration simulators). In the last few years, congressional attention has focused on the following
goods and technologies.
25 In a recent case, however, the U.S. Court of Appeals for the District of Columbia upheld the authority of the
Commerce Department to withhold information on export license applications under the Freedom of Information Act
exemption for matters specifically exempted from disclosure by statute, notwithstanding the lapse of the EAA.
Wisconsin Project on Nuclear Arms Control v. U.S. Dep’t of Commerce, 317 F.3d 275 (D.C.Cir. 2003).
26 Testimony of William A. Reinsch the Under Secretary for Export Administration, Department of Commerce on the
Reauthorization of the Export Administration Act of 1979 (EAA), before the Senate Committee of Banking, Housing
and Urban Affairs, Subcommittee on Trade and International Finance, on January 20, 1999.
These technologically advanced computers can perform multiple, complex digital operations
within seconds. Sometimes also called supercomputers, HPCs are actually a wide range of
technologies that also include bundled workstations, mainframe computers, advanced
microprocessors, and software. Until recently, the benchmark used for gauging HPC computing
performance was a metric known as composite theoretical performance (CTP), measured in
millions of theoretical operations per second (MTOPS). The actual MTOPS performed by an
HPC over a period of time can vary, based on which operations are performed (some can take
longer than others or can be performed while other operations are taking place) and the real cycle
speed of the computer. However, the Wassenaar Arrangement approved a new standard for
calculating computing power in December 2005, which was incorporated into a BIS final 27
rulemaking on April 24 2006. The new standard, called adjusted peak performance (APP), is the
“adjusted peak rate at which digital computers perform 64-bit or larger floating point additions 28
and multiplications,” and is measured by a metric known as “weighted teraflops”(WT). The
control level is set at 0.75 WT, a level which BIS states “continues to control high-end proprietary
HPCs, such as those used by the Department of Defense and the Department of Energy for 29
advanced research, development, and simulation.” This level replaces the 190,000 MTOPS
benchmark level of January 2002. The level for computer software and technology is set at 0.04
WT and for computer development and production technology at 0.1 WT.
Since the advent of HPC technology, there have been restrictions on U.S. exports. However, some
advocates have maintained that because the computing capabilities of HPCs have advanced so
rapidly, and due to the foreign availability of models comparable to some of those produced in the
United States, export restrictions of HPCs are neither practical or enforceable. During the Clinton
Administration, HPC export thresholds—or the amount of MTOPS capability that an HPC would
need to require a license—were raised several times. The last change to the MTOPS level was in 30
January 2002, when the Bush Administration raised the threshold for HPC exports to Tier 3 31
countries to 190,000 MTOPS, up from 2,000 MTOPS in 1995. (This process of decontrol has
had a significant regulatory impact on BIS. It reports that in 1993 over 11,000 (42% of total
license applications that year) were for computer assemblies and hardware; by 2003, that number 32
had dropped to 14 license applications for the category that year.) Despite the conversion to the
WT metric, changes in the control level are still subject to the notification requirements of Title
XII (B) of Division A of the National Defense Authorization Act of 1998 (NDAA98), which
27 71 Federal Register 20876, April 24, 2006.
28 “Wassenaar Arrangement Technical Note on ‘Adjusted Peak Performance’” in The Export Practicioner, January
2006, p. 22.
29 71 Federal Register 20878, April 24, 2006.
30 For HPCs, the Commerce Department organized countries of destination into 4 tiers with increasing levels of export
control. These range from a no-license policy for HPC exports to Tier 1 countries (Western Europe, Australia, Mexico,
Japan, and New Zealand) to the virtual embargo for exports to Tier 4 countries (Cuba, Iran, Iraq, Libya, North Korea,
Sudan, and Syria). Tier 3 countries, including China, Russia and other countries of the Commonwealth of Independent
States (CIS), India, and Pakistan, were subject to a dual control system distinguishing between civilian and military
end-users and end-uses until 2000. In January 2001, President Clinton merged the Tier I and Tier 2 categories and
effectively decontrolled exports to those countries.
31 For a summary of changes to HPC controls, see Bureau of Industry and Security, “High Performance Computer
Export Controls,” http://www.bis.doc.gov/HPCs/Default.htm.
32 BIS, 2003 Annual Report, http://www.bis.doc.gov/news/2004/03annualrept/index.htm#Chap2.
allows implementation of the new performance level 60 days after a report has been submitted to 33
The National Defense Authorization Act of 1998 imposed special conditions on the export of high
performance computers. This Title (a) requires the prior notification requirement for exports of
HPCs above the MTOPS threshold to Tier III countries. Under this provision of NDAA, exports
of these HPCs are subject to the approval of the Secretaries of Commerce, Defense, Energy, and
State; (b) imposes post-shipment verification requirements for these HPCs; and (c) imposes the
requirement to notify Congress of an adjustment in the MTOPS threshold levels. Each version of th
EAA in the 107 Congress provided for the repeal of NDAA98 provisions.
Encryption is the process of encoding electronic messages to transfer important information and
data securely. “Keys” are needed to unlock or decode the message. Encryption is an important
element of e-commerce security, however this technology is also central to cryptography and
could affect military code-breaking capabilities. The increased civilian importance of encryption
technology resulted in the transfer in control authority of certain encryption technology from the
Department of State to the Department of Commerce by Executive Order 13026 on November
The result of these actions has been the progressive decontrol of “retail” or “mass market”
encryption technology. Currently, retail encryption products and technology can be exported to 34
western countries, and to non-governmental end-users in other countries through a license
exemption that requires notification of the transaction. Licenses for encryption products and
technology continue to be required for countries covered by anti-terrorism (AT) controls.
Stealth design incorporates materials, shapes, and structures into a functional system to protect it
against electronic detection. Stealth technology falls into two categories. Certain stealth materials
can deflect an incoming radar signal to neutral space thus preventing the radar receiver from
“seeing” the object. Conversely, other materials may absorb incoming radar signals preventing
them from reflecting back to the receiver. Stealth related commodities are sensitive from an
export control perspective because some materials and processes involved have civil applications
that make it difficult to control dissemination and retain U.S. leadership in this technology.
Concerns over the potential export of this material led the Department of State to reclassify 35
certain stealth-related technology as munitions in the 1990s.
33 The National Defense Authorization Act of 2001 lowered the notification requirement from 180 to 60 days, H.Rept.
106-945, Sec. 1234, October 6, 2000. The WT metric conversion notification was sent to Congress on February 3,
34 European Union countries, Australia, Czech Republic, Hungary, Japan, New Zealand, Norway, Poland, and
35 For further discussion, see GAO Report NSIAD 95-140, Export Controls: Concerns over Stealth Related Exports
Congress has debated the issues of how strictly to control exports of commercial communications
satellites and whether monitoring of foreign launch operations has been effective in preventing
disclosures of missile secrets. In 1998, the Cox Committee found that U.S. satellite manufacturers
provided missile design information and skills to China through the improper transfer of launch 36
failure analysis. Exports of satellites were licensed by the Department of Commerce from late
which had traditionally licensed missile technology exports. The satellite industry claims that
this transfer has led to licensing delays and lost sales resulting from regulatory uncertainty, and 38
they have lobbied to reverse export controls to Commerce. Satellites launched for commercial
communication purposes may contain embedded sensitive technology such as positioning
thrusters, signal encryption, mating and separation mechanisms, and multiple satellite/reentry
vehicle systems. As stand-alone items, these technologies are controlled under the U.S. Munitions th
List. One version of EAA legislation in the 107 Congress proposed to transfer the licensing of
commercial communications satellite sales back from State to Commerce.
This category covers manufacturing technology such as lathes and other manufacturing
equipment used to produce parts for missiles, aircraft engines and arms. This capital equipment is
increasingly sophisticated, employing advanced computer software and circuitry. The industry
has been vocal in claiming that its competitive position has been hampered by the lack of
multilateral controls over sales of this equipment, especially the lack of consensus on controls 39
“Hot section” technology is used in the development, production and overhaul of jet aircraft both
military and commercial. Technology developed principally by the Department of Defense is
controlled by the U.S. Munitions List. However, technology actually incorporated in commercial
aircraft is regulated by the Department of Commerce and falls under a separate foreign policy-th
based control category. During debates on EAA legislation in the 106 Congress, several senators
raised concerns about the possible decontrol of this technology and sought a “carve-out” of hot 40
section and other sensitive technologies that would prevent such items from being decontrolled.
36 H.Rept. 105-851, U.S. National Security and Military/Commercial Concerns with the People’s Republic of China,
May 25, 1999.
37 Required by the National Defense Authorization Act for FY1999, P.L. 105-261.
38 Satellite Industry Association, “Satellite Export Licensing: The Impact of Federal Export Control Laws on the
California Space Industry,” Presentation, February 2001.
39 See Paul Freedenberg, Testimony before the Senate Banking Committee, February 7, 2001, http://www.senate.gov/
~banking/01_02hrg/020701/index.htm (hereafter Freedenberg).
40 “Sen. Warner Says Agreement Near On Bringing EAA Bill to Floor This Week,” 17 International Trade Reporter
340, March 2, 2000.
The civilian aviation industry has long been concerned that the Directorate of Defense Trade
Controls (DDTC), the agency within the Department of State that controls defense goods and
technology, has been increasingly asserting jurisdiction over civilian aircraft parts and
components. Section 17(c) of the EAA states, in part, that “standard equipment certified by the
Federal Aviation Administration (FAA), in civil aircraft and is an integral part of such aircraft,
and which is to be exported to a country other than a controlled country, shall be subject to export
controls exclusively under this act. Any such product shall not be subject to controls under
Section 38(b)(2) [licensing requirements] of the AECA.” In the aftermath of the QRS-11 case, in
which DDTC asserted jurisdiction over a non-FAA component of a commercial standby
instrument system (CSIS) under the jurisdiction of Commerce, commercial suppliers have
complained that in order not to run afoul of the ITAR, they must submit commodity jurisdiction
for items they believe are covered by 17(c).
On September 24, 2007, Rep. Manzullo introduced legislation (H.R. 3633) to clarify that civil
aircraft equipment, parts, component, or technology eligible for export airworthiness approval
under Federal Aviation Administration regulations are to be subject only to controls under the 41
EAA. After negotiations with Congress and industry, DDTC released a new rulemaking
clarifying the interpretation of Section 17(c) of the EAA. Under the regulation, Commerce will
have jurisdiction over parts and components of civil aircraft when such components are standard
equipment, covered by a civil aircraft type certificate issued by the Federal Aviation
Administration, and is an integral part of the aircraft. For such parts and components not
considered significant military equipment (SME), this means that suppliers will no longer have to
submit the part or component for a commodity jurisdiction determination.
Exports of technology, know-how, and non-encryption source code is “deemed” to have been
exported when it is released to a foreign national within the United States. Such knowledge 42
transfers are regulated by the Export Administration Regulations, which require that a license
must be obtained by a U.S. entity to transfer technology to a foreign national in the United States
if the same transfer to the home country of the foreign national would require a license. Deemed th
exports are not expressly mentioned in the 1979 EAA. House versions of EAA in the 107
Congress sought to explicitly define deemed exports as exports falling under the jurisdiction of
the act. Processing deemed export license applications has become a larger part of BIS activity. In
FY2007, BIS reviewed 1,056 deemed export licenses (5.4% of the total licenses submitted to 43
BIS) and reports that nearly 57% of deemed licenses reviewed were for Chinese nationals.
In March 2005, BIS established a rule-making procedure in response to an Inspector General’s 44
(IG) report, which recommended that BIS alter the standard governing which foreign nationals
41 “Amendment to the International Traffic in Arms Regulations: the United States Munitions List: Category VIII,”
Federal Register, August 14, 2008, p.47,523.
42 EAR 15 C.F.R. 734.2
43 BIS, 2007 Annual Report, p.17-18.
44 Deemed Export Controls May Not Stop the Transfer of Sensitive Technology to Foreign Nationals in the United
States, (IPE-16176, March 2004).
are subject to export controls. Currently, foreign nationals are subject to export controls
requirements based on their country of citizenship or permanent residency; however, the IG
recommended that country of birth should be the standard used. According to the IG, foreign
nationals from controlled destinations could access technology without scrutiny if they first
establish permanent residency in a third country, and foreign nationals from controlled
destinations often have dual nationalities. However, Under Secretary of Commerce David
McCormick announced in December 2005 that deemed export controls would continue to be 45
based on country of citizenship or permanent residency, not place of birth.
In December 2007, BIS released the report of the Deemed Export Advisory Commission
(DEAC), which was commissioned in September 2006 to conduct an independent assessment of
the deemed export regulatory regime. The Commission recommended the establishment of a
“trusted entity” program for academia and industrial entities to qualify for a streamlined deemed
export application process. The Commission proposed an evaluation of an applicant’s probable
loyalties that would include consideration of an applicant’s country of birth, prior country of
residence, current citizenship, and an examination of a person’s prior and present activities to
determine eligibility for a deemed export license. The Commission also recommended
streamlining certain terminology in the deemed export regulations and the establishment of an
outside panel of experts to conduct an annual “sunset” review of technologies on the Commerce 46
The DEAC recommendations were highly criticized by industry representatives and the research
community with one group summing up the proposals as “unadministrable for the government 47
and difficult-to-impossible to comply with for industry.” BIS published a notice of inquiry in
May 2008 seeking comment on the scope of technologies on the Commerce Control List subject
to deemed export controls and on the criteria used to assess country affiliation for foreign 48
nationals. While this inquiry has yet to result in a formal rulemaking, another DEAC
recommendation, the Emerging Technologies and Research Advisory Committee (ETRAC) has
begun to meet and has been grappling with these issues.
A principal theme in debates on export administration legislation is the tension between
commercial and national security concerns. These concerns are not mutually exclusive, and thus
it is often difficult to characterize opposing camps. For example, nearly everyone favors reform
of the current system, yet no one considers themselves opposed to national security. Generally,
however, many who favor reform of the current export control accept the business perspective
that such reform would assist U.S. business to compete in the global marketplace. Others view the
issue more from a national security perspective. To this group, reform should be concerned less
with the abilities of U.S. industry to export and more with effective controls placed on potential
45 David McCormick, “Foreign Talent Need Not Threaten Security,” Financial Times, December 13, 2005.
46 Deemed Export Advisory Commission, The Deemed Export Rule in the Era of Globalization, December 20, 2007,
available at http://tac.bis.doc.gov/2007/deacreport.pdf.
47 Letter from AeA, et.al., to Secretary Gutierrez, February 15, 2008.
48 73 Federal Register 28795, May 19, 2008.
exports to countries that threaten the security of the United States, terrorists, violators of human
rights, and proliferators of weapons of mass destruction. From these different perspectives,
controversies arise regarding the controllability of technology, the effectiveness of multilateral
regimes, the bureaucratic structure of the licensing process and the impact of export controls on
the U.S. economy.
The foreign availability and mass market provisions of EAA reauthorization legislation, and the
underlying concept of the controllability of technology, have proved controversial in the EAA
debate. Industry groups that have taken an active position on legislation to replace the 1979 EAA
have considered the adoption of these provisions as a key benefit of potential EAA legislation.
The foreign availability and mass market concepts are integral to their contention that the flow of
technology cannot be effectively controlled, and that U.S. dominance of cutting-edge technology
can no longer be assumed. According to their arguments, unilateral controls will not stop other
countries from obtaining advanced technology. Advocates of this viewpoint claim that “countries
of concern” will simply obtain this technology from other nations. Adherents to this view regard
current multilateral controls on dual-use articles as ineffectual. From this perspective, only
American business suffers from the unilateral nature of U.S. export controls. In the process, 49
foreign business wins new markets or gains an incentive to enter new markets.
According to the industry position, unilateral export controls are also becoming increasingly
unworkable as the economy undergoes globalization. The current export control system is
predicated on goods being manufactured or assembled in one country. In many industries,
however, component parts are manufactured worldwide and are considered commodities. If these 50
parts are not available from one source on a timely basis, they can be obtained elsewhere.
Purchasing managers at Daimler Chrysler Aerospace, for example, reportedly have been
instructed to reduce dependence on American components for defense and space technology 51
products because of delays associated with American licensing procedures.
Other participants in the export control debate are concerned about the mass market and foreign
availability arguments advanced by industry proponents. Critics charge that the mass market
standard would effectively nullify the whole U.S. control regime by decontrolling any item that
met the criteria under the law. They assert that virtually any product, including dual-use items
used for proliferation purposes, could qualify for mass market status. Similarly, as one non-th
proliferation advocate testified regarding EAA legislation in the 106 Congress, the foreign
availability criterion would allow the sale of “anything a controlled country can purchase from a 52
A related argument made by industry is that national security is enhanced by robust export
industries. This argument is predicated on the changing nature of defense procurement, research
and development. During the Cold War, the formative period of the current export control regime,
49 For examples of this argument see, Prepared Statement of Dan Hoydosh, co-chairman of Computer Coalition for
Responsible Exports, in Senate Banking Committee, Reauthorization of the Export Administration Act, S.Hrg. 106-
461, March 16, 1999 (Reauthorization).
50 Hamre, John, Testimony before the Armed Services Committee, February 28, 2000, transcript, p. 31-33.
51 Douglass, John W., prepared testimony before the Armed Services Committee, February 28, 2000, p.3.
52 Milhollin, Gary, prepared testimony before the Senate Governmental Affairs Committee, May 26, 2000, p. 6.
the military conducted considerably technical research on its own and provided funds for research
and development. Now that situation is largely reversed. The military now purchases many items
‘off-the-shelf’ and relies to a greater extent on commercial applications. Industry argues that it is
in the national security to sell current technology to generate funds to develop future technology.
If American firms are competitively hindered because of export controls, the argument goes,
foreign firms will gain market share, increase profits, invest more in R&D, shrink and possibly
surpass our technological lead. These circumstances, in turn, potential could affect the quality of
the technology available for national security purposes. Thus, industry argues it needs a
streamlined export process, one that will not needlessly impede exports.
Critics of industry’s national security position reject this argument. They maintain that the United
States does not promote its national security by selling advanced technology to potentially hostile
states. This technology, if sold to a regime of dubious stability, could be used against the United
States or allies in the future. Proponents of this argument point to the case of Iraq, which received
U.S. weaponry in the 1980s when Saddam Hussein was considered a useful counterweight to
Iran. Subsequently, this technology was used against Kuwait and allied forces in the Persian Gulf
War. Reliance on the civilian sector for R&D, they claim, is a policy decision brought about by
declining defense budgets in the 1990s. Some further argue that R&D that advances defense
capabilities should be funded within the Defense Department if it is necessary to maintain
controls on technology to certain nations.
Industry groups and some other observers have used the rapid rise in computing power as an
illustration both of the uncontrollable nature of technology and the inability of the export control
system to account for such innovation. According to one national security analyst, attempting to
control computing power is not “feasible or effective.” He maintains that the restraint of
computer trade is self-defeating because it cedes markets and profits that could be used for 53
Increasing computing speeds combined with networking advances have blurred the distinction
between super-computers and commodity computers. Microprocessors that individually comply
with export regulations can be linked together to create servers with MTOPS capabilities that
breach export thresholds. If enough processors are linked together, they can create a parallel
processing system with capabilities that approach those of a super-computer. The Defense
Science Board noted that the ability to cluster commodity computers in order to multiply
computing power erodes the ability to restrict access to high-performance computing, even if 54
high-performance stand-alone machines can be controlled.
Other observers believe the United States can restrict access to the highest computer technology
by limiting exports. They maintain that American-made computers are perceived as superior, and
thus carry greater cachet than products from other nations. They note that the purchase of an
American-made computer product also buys superior networking and service, often at a better
53 Richard Perle, former Assistant Secretary of Defense for Security Policy in the Reagan Administration speaking at
the Forum for Technology and Innovation, March 23, 1999, http://www.tech-forum.org/upcoming/transcripts/
54 Defense Science Board, Final Report of Task Force on Globalization and Security, Washington: Office of the Under
Secretary of Defense for Acquisition and Technology, December 1999, p. 27.
price. Control advocates maintain that these distinctions are significant, that qualitative 55
differences are important. In addition, networking a parallel processing system, as those without
access to advanced computing technology must do to increase computing capability, presents
additional challenges distinct from those faced by engineers of commodity computers.
One policy that has been attempted to monitor and verify the end-use of controlled goods is the
post-shipment verification requirement (PSV) on the export of HPCs mandated by Sec 1213 of
NDAA98 (see above). This section requires that a PSV be made for computers destined for
computers controlled to tier III destinations, including China, Russia, India, Pakistan, Israel and 56
other nations in areas of regional instability. Lawmakers have been especially concerned with
exports of HPCs to the People’s Republic of China. The GAO has reported that China has
restricted access to facilities that contain U.S. HPC exports. It has also found that BIS has made
limited efforts to monitor or to verify compliance with the terms and conditions specified by the 57
export license. Reportedly, the difficulty in monitoring the end-use of HPC exports in China has
been exacerbated by the close ties that Chinese state owned enterprises have with the Chinese 58
The United States participates in several multilateral export control regimes. The principal
multilateral regime related to dual-use goods and technology is the Wassenaar Arrangement (WA)
on Dual-Use Goods and Munitions. The WA was created in 1996 and is the successor
organization to the Coordinated Committee (CoCom), the Cold War era dual-use control regime
that ended in 1994. The WA dual-use control list is generally consistent with U.S. CCL items
subject to national security controls. The United States also participates in four proliferation
related control regimes: the Australia Group (chemical and biological weapons and precursors); 59
the Missile Technology Control Regime, and the Nuclear Suppliers Group.
Generally, these groups are characterized by national discretion, a common control list, and
regular reporting requirements. Each group has formulated a common control list and member
nations control the exports of those goods under their own national laws, a policy know as
national discretion. Unlike CoCom, however, these organizations do not perform a review
function prior to the grant of a national export license. The regime’s members do pledge
disclosure of export licensing decisions, and pledge consultation on sensitive export licenses.
Some groups adhere to a “no undercut” provision—that is, a member state will not license the
55 Milhollin, Gary, prepared testimony before the Senate Governmental Affairs Committee, May 26, 2000, p. 6.
56 Originally this regulation applied to computers over 2,000 MTOPS. The benchmark was raised over the years to
190,000 MTOPS and has now been replaced by a new metric, weighted teraflops (WT)(see “High Performance
Computers (HPCs),” above).
57 GAO Report 02-468T, Export Controls: Issues to Consider in Authorizing a New Export Administration Act,
February 28, 2002, p. 7.
58 CRS Report 98-617, Technology, Trade, and Security Issues Between the United States and the People's Republic of
China: A Trip Report, August 1997, by Glenn J. McLoughlin.
59 See CRS Report RL31559, Proliferation Control Regimes: Background and Status, by Mary Beth Nikitin et al.; and
CRS Report RS20517, Military Technology and Conventional Weapons Export Controls: The Wassenaar
Arrangement, by Richard F. Grimmett.
sale of an item in which a license has been denied by another state. However, these groups
operate by consensus and are hampered by limited institutional structures.
Some observers contend that the Wassenaar Arrangement, in particular, is ineffective because it
relies on consensus of member states. The necessity for consensus, critics charge, results in a
level of control acceptable to all. Its minimal reporting requirements mandate notification only
that an item has been sold, thus preventing effective pre-export consultation among member
Industry representatives stress the necessity of effective multilateral controls. They argue that
export controls are effective only if they are adhered to by all states capable of exporting a given
technology. For example, the machine tool industry has been at the forefront in criticizing the
unilateral nature of our export policies, especially concerning exports to China. It notes that there
is no consensus among Wassenaar Arrangement countries on the proper limits of technology
transfer to China. (Indeed, no country is explicitly targeted by Wassenaar.) Stringent domestic
controls combined with minimal multilateral constraints only damage American companies,
according to industry spokesmen. They fault the U.S. for having an overly rigorous licensing
policy towards China, without noticeably pursuing a strategy to convince our allies to follow our 60
Proponents of tighter export restrictions note that America traditionally has taken the lead in
export controls and non-proliferation efforts. These efforts included the original EAA, adopted in
1949, and the establishment of CoCom. They argue that efforts to strengthen CoCom’s successor
regime, the Wassenaar Arrangement, cannot succeed if Washington itself is loosening export
restrictions. Thus, the United States must take the lead in order to convince other nations to
follow the U.S. example. Adherents of this viewpoint argue that the successful negotiating
strategy in these multilateral fora is to adopt controls first and then persuade other countries to
follow suit. Hence in their view, an export control strategy pegged solely on the policies of other 61
nations, negotiated by consensus, is ineffectual and harmful to national security.
Both industry spokesmen and advocates of heightened export controls agree that the multilateral
controls need to be strengthened. Yet, to do this requires consensus on which goods and which
countries represent a threat. There does seem to be agreement among western nations to restrict 62
dual-use items to a limited number of ‘countries of concern,’ yet consensus breaks down with
regard to other states, notably China. The export control dilemma in this context becomes clear.
Without consensus on a particular target country, the question becomes whether the United States
should impose controls unilaterally. One then needs to determine either: which non-proliferation
or other foreign policy goals are sufficiently important to offset possibly damaging American
business, and possibly costing American jobs; or how large an economic benefit would justify
risking important national security goals.
Debate over export controls has often focused on China. The dilemma that encapsulates U.S.
export control policy to China is how to benefit from the potentially vast Chinese market and low
60 See Freedenberg, p. 6.
61 Milhollin, prepared, p. 7.
62 Cuba, Iran, Iraq, Libya, North Korea, and Sudan.
Chinese production costs while minimizing the risk to U.S. security interests of exporting
sensitive dual-use technologies to China. Some representatives of the business community have
argued that U.S. export control policy toward China is too stringent. They claim such controls
have hampered technology transfers to China in the past few years while the controls of U.S.
allies have not. They reported that Chinese companies will not ask U.S. companies to bid on sales
because of the delays associated with the U.S. licensing process. As one industry spokesman has
testified: “The result has been that the Chinese are denied nothing in terms of high technology,
but U.S. firms have lost out in a crucial market. This serves neither our commercial nor our 63
However, other analysts and several Members of Congress have expressed grave concerns about
China’s dual-use technology acquisitions. They cite findings of the Cox Commission that China
evaded existing export controls to illegally obtain missile design and satellite technology and that 64
China has circumvented end-user controls on high-performance computers. According to this
view, the Commission’s findings show the need for both tightened controls and greater
enforcement of export controls against China. In addition, China has been implicated in several 65
nuclear, missile, and chemical proliferation activities.
On June 19, 2007, BIS published the final rule entitled “Revisions and Clarification of Export and
Re-export Controls for the People’s Republic of China” (72 Fed. Reg. 33646). The final rule is
composed of three parts: a new licensing requirement for certain products for military end-use in
China, a validated end-user (VEU) program, and a requirement to obtain an end-user statement
for certain licensed products. The proposed rule has been driven by the concern that the export of
commercial technology to certain end-users is undermining the arms embargo that the United
States and others maintain against China. Others, including industry, have questioned the scope
and efficacy of these new controls.
The new licensing policy has two distinct components: the establishment of new military end-use
controls for the PRC and a revised License Review Policy for national security controlled items
destined for the PRC. The aspect that has received the most attention is the establishment of new
military end-use controls on 20 product categories consisting of 31 export control classification
numbers (ECCN). Currently, these items are controlled primarily for anti-terrorism reasons, thus
a license is required only for exports to countries determined to be state sponsors of terrorism
(Cuba, Iran, North Korea, Sudan, Syria). Under the new rule, BIS will require a license for the
export, reexport, or in country transfer of these items if the exporter knows, has reason to know,
or is informed by BIS that the item is or may be intended for military end-uses in the PRC. The
final rule also revises the long-standing licensing policy for National Security controlled items
destined for the PRC contained in the EAR, Part 742.4(b)(7). It clarifies that there is a
presumption of denial for license applications to export, reexport, or transfer items that would
make a direct and significant contribution to the PRC’s military capabilities in certain key
63 Freedenberg, p. 7.
64 For more information on technology transfers to China, see CRS Report 98-485, China: Possible Missile Technology
Transfers Under U.S. Satellite Export Policy—Actions and Chronology, by Shirley A. Kan.
The second component of the Final Rule also increases the exemption threshold for obtaining
End-Use Statements (EUS) from the Ministry of Foreign Commerce (MOFCOM) of the PRC.
The PRC requires that MOFCOM issue an EUS before BIS can conduct a pre-license check or
post-shipment verification for an export. A U.S. exporter must request that the importer obtain the
EUS for a license application because the BIS inspection is often a statutory or regulatory pre-
requisite for approving some applications. The rule increases the amount of the value of the
license exempted from the EUS requirement from $5,000 to $50,000 for most goods to the PRC.
However, it expands the EUS requirement to cover all license applications to the PRC reaching
this threshold. Previously, EUS were required only for items under national security controls.
The final rule also establishes a the Validated End-User (VEU) program. The VEU establishes a
method by which trusted PRC civilian end-users can be nominated for the program, and, if
approved by BIS, the eligible end-users may receive items eligible under the program without a
license. The rule sets up an applications process by which an end-user can be nominated for the
program. In approving a candidate for VEU status, the ERC will evaluate the entity’s exclusive
engagement in civilian end-use activities, its compliance record with U.S. export controls, its
capability to comply with the recordkeeping requirements of the VEU authorization, agreement to
on-site review prior to approval and subsequently to ensure adherence to VEU conditions, and its
relationship with U.S. and foreign companies. On September 11, 2007, China’s Minister of
Foreign Commerce (MoFCom) announced that any company seeking VEU status would need 66
authorization from MoFCom before allowing plant or records inspections.
Not all items on the CCL are eligible for export under this program. Items controlled for crime
control or missile technology by the EAR do not qualify for export under this program due to
statutory reasons. In addition, not all items that are eligible for export under this program can be
exported to all validated end-users. The approved VEU application will be accompanied by a list
of items that can be exported to the end-user, and this list can be expanded or contracted by the
ERC. Once approved , the VEU can import approved items from any exporter, not just the
According to BIS, the proposal would streamline licensing for certain companies for whom
exporters routinely request and receive licenses for the same product over time. Thus, resources
that currently process these routine applications could be diverted to staff more problematic
license applications. On October 2, 2007, BIS announced the expansion of the VEU program to 67
eligible companies in India. However, no eligible Indian companies were named in 2008.
On October 19, 2007, BIS announced the first five VEU companies: Applied Materials China,
National Semiconductor, Boeing Hexcel AVIC I Joint Venture, Semiconductor Manufacturing
International Corporation (SMIC), and Shanghai Hua Hong NEC Corporation (HHNEC). BIS 68
reported that these companies had imported licensed goods valued at $54.3 million in 2006. In
January 2008, the Wisconsin Project on Nuclear Arms Control charged in a report that two of the
entities, AVIC I and HHNEC, present diversion risks through their corporate affiliations with
66 China Ministry of Commerce, Announcement #60, 2007, September 11, 2007,
http://english.mofcom.gov.cn/aarticle/policyrelease/domesticpolicy/200709/20070905091778.html; The Export
Practitioner, October 2007, p. 27.
67 BIS Press Release, October 2, 2007, http://www.bis.doc.gov/10-02-07%20India%20VEU%20-%20FINAL.pdf.
68 “New BIS Program Changes Export Rules on Targeted Products For Select Companies in China,” BIS Press Release,
October 19, 2007 http://www.bis.doc.gov/news/2007/china10182007.htm.
government-owned companies that do business with the Chinese military. The Wisconsin Project
also contend that some of these entities’ affiliates have run afoul of U.S. proliferation sanctions 69
and export control laws. BIS Undersecretary Mario Mancuso responded to the report by
maintaining that the companies had a “demonstrable history of using U.S. technology in the
past...We know a lot about these companies and know a lot about how they use the technologies
they are authorized to receive through VEU. These technologies were previously available to 70
these companies by license, and [the VEU] judgment was based on data, not conjecture.”
Controversy regarding the VEU has not abated. A GAO study of September 200871 recommended
the suspension of the VEU program with China because BIS has not been able to reach a VEU-
specific inspection agreement with China for conducting on-site reviews of validated end-users.
Nor has the agency developed criteria for selecting candidates for on-sites, or the procedures for
conducting the on-site review itself, according to GAO. Commerce notes that it has conducted
checks under the pre-existing 2004 end-use verification understanding (EUVU). However,
checks conducted under this system require the aforementioned MoFCom end-use statement,
running counter to the trade facilitation rationale of the program, and if the companies do not 72
voluntarily seek an EUS from MoFCom, then an inspection cannot take place. On January 13,
ensure the program’s secure and efficient operation.”
As noted earlier, the Bureau of Industry and Security (BIS) within the Department of Commerce
(DOC) is responsible for regulating dual-use exports. However, other agencies also provide input
into the licensing process. BIS consults with other members of the national security community
on license applications and commodity classifications. The Defense Technology Security Agency
in the Department of Defense conducts national security reviews for license applications referred
from Commerce and State. The Department of Energy also reviews dual-use license applications
referred by BIS for nuclear uses and nuclear end-users, and it and the Nuclear Regulatory
Commission license exportation of nuclear materials. In addition, the Directorate of Defense
Trade Controls (DDTC) at the State Department administers the International Traffic in Arms
Regulations. Through the U.S. Munitions List, DDTC controls the export of weapons and
Industry leaders identify several problems with the existing licensing system. First, overlapping
jurisdiction between the Commerce and State Departments with regard to certain dual-use
products makes it unclear where the exporters need to apply for licenses. Second, extended time
periods required for license approval compromise the reliability of U.S. suppliers and make it
hard for manufacturers and customers to plan ahead. Third, the licensing system does not reflect
advances in technology, foreign availability of dual-use items, and the economic impact of export
69 Wisconsin Project on Nuclear Arms Control, “In China We Trust?”, January 2008, available at
70 “Mancuso Defends VEU Program as Union Calls for Suspension,” Inside U.S. China Trade, January 9, 2008.
71 GAO Report 08-1095, Export Controls: Challenges with Commerce’s Validated End-User Program May Limit Its
Ability to Ensure that Semiconductor Equipment Exported to China is Used as Intended, September 2008.
72 GAO-08-1095, p. 29.
73 BIS Press Release, January 13, 2009. [http://www.bis.doc.gov/news/2009/bis_press01132009.htm] .
controls on the industrial base. Finally, there is no opportunity for judicial review of licensing
Others consider foreign availability and economic impact to be important considerations, yet
secondary to national security. Export administration officials claim that they conduct thorough,
fair, and expeditious license reviews. Time is required to check proposed export items against
lists of controlled items, check end users and end uses against lists of suspect recipients, and
coordinate with several government agencies. Officials say they must be able to “stop the clock”
to obtain additional information and investigate certain issues on a case-by-case basis to insure
that sensitive technologies do not find their way into the wrong hands.
Some analysts who see national security as the primary purpose of the export control regime
question whether BIS belongs in the Department of Commerce. They claim that DOC’s mission
is mostly one of promoting exports and generally serving commercial interests. This, in some
eyes, may create an institutional bias towards the granting of export licenses and skew the process
against national security goals. Other analysts point to the full and equal participation of other
agencies, particularly the Department of Defense, in the current structure to argue that such bias is
unlikely to prevail.
Ian F. Fergusson
Specialist in International Trade and Finance