Export Licensing: Controlling Earth, Air, Fire and Water
Since the last overhaul in 1971, export-licensing activities have continued to deteriorate, being both inefficient and ineffective. The current administration urges reform, which is needed and could be a commendable advance, but specifics are yet to be revealed. When involved with client license problems, I was convinced that military officers who had performed poorly were sentenced to purgatory as license reviewers to fight to overwhelm forces at Commerce. This adversarial aspect remains and needs meaningful reform, some of which is on the Congressional docket and could affect many readers. Bill H.R. 2401 covering reforms passed the House last session and is pending in the Senate but without a companion Senate bill.
Insanity on issues is shown by personal experience. One Silicon Valley client was a small electronics manufacturer run by a newly minted American citizen who said he “wanted to do things right.” We visited the Defense Technology Security Administration (DTSA), where he explained that denial of his export license made no sense because he could go to a Radio Shack in Hong Kong, buy parts, assemble them in his hotel room and fulfill his contract.
A DTSA deputy director, eyes narrowed to slits, replied, “We’ll just have to go to Hong Kong and shut that place down.” Further, the entire topic should not have been a DoD concern but was because of a commodity jurisdiction (CJ) dispute. Can you see problems yet? I call it control – the “Earth, Air, Fire and Water Syndrome.”
Foreign rivals take advantage of these U.S. license debacles by advertising that their products have “designed U.S. components out” and are “free of U.S. parts and encumbering regulations.” Problems with foreign availability and dual use reflect my views, but they are described by many U.S. industry groups, like the Coalition for Security and Competitiveness, as needing correction.
Doing things right is about U.S. national security. It is always a good rule to avoid control freaks and always seek export license first via the EAR, regardless of what ITAR proponents say, and avoid being the “ball bouncing off the walls” for months on end (while your customer sits waiting).
All of this is significant because if your firm sells items abroad, a license may be needed, and you are potentially on the hook even if your product is exported by a reseller without a license. If your manufacturing process is used abroad, a license may be required. How that is all defined and authorized is your problem. Distinguishing how your product or process is different from competitive or public art is your problem.
Fun begins with the concept of dual use. Can the product or process be used for other ends than offered or intended? Common sense says most products and processes can be used for purposes other than originally devised, and that is at the heart of commodity jurisdiction. So when in doubt, ask Commerce. Only then, if license is denied, submit to resolution for a CJ determination.
Change under way is sorely needed but is not a high priority to the Administration. It includes (just to name a few):
- Reform of the CJ process
- Establishing a true decision maker on CJ issues
- Regular review to default items into decontrol
- Simplifying exemptions use
- Expanding validated end-user lists
- Establishing a meaningful difference between knowing misconduct, gross negligence and neglect
- Doing foreign-availability reviews annually
- Establishing trusted-party exemptions in licensing matters
- Adjudicating license applications within 90 days
- Linking end-use and end-user control
- Making exemption for U.S. firms to export to subsidiaries abroad