Remarks by United States Trade Representative Michael Froman
The Bureau of Industry and Security Update Conference on Export Controls and Policy
July 24, 2013
*As Prepared for Delivery*
“Thank you, Eric. Good morning. It’s a pleasure – and a little strange – to be here at what I understand is called the ‘export control nerd prom.’ Strange, because as the U.S. Trade Representative, I generally speak about trade policy, but today I’m here to talk mostly about national security, the competitiveness of our national security industries and how export control reform is enhancing both.
“Prior to becoming the U.S. Trade Representative, I served as Assistant to the President and Deputy National Security Advisor for International Economics. And in that capacity, I have had the pleasure of working on the most ambitious reform of our export control system in history.
“As many of you know, it started with a proposal by then Secretary of Defense Gates at a Cabinet retreat in the first year of the Obama Administration. He observed that much had changed since the end of the Cold War, but not our export control system. We were spending enormous resources controlling the export of non-sensitive items to even our closest allies and, in doing so, creating obstacles to interoperability in the field.
“That was undermining the competiveness of key U.S. industries and making it more difficult to focus on the most critical threats to our national security. Secretary Gates argued then for ‘building a taller fence around a smaller yard,’ focusing on controlling the most sensitive items and ensuring enforcement against them going to the most sensitive locations.
“President Obama directed us to fundamentally reform our export control system to strengthen our national and economic security and, with the support of Secretary Gates, Secretary Locke, Secretary Clinton and many others, we set out to fulfill President Obama’s vision.
“Our goal was to create a single control list, a single enforcement coordination entity, a single IT system linking all of the relevant agencies and ultimately, a single licensing agency. I am here to report that we have made major strides in delivering on that vision and that we are well on our way to completing that task.
“We recognized that implementing that vision would be difficult. It would affect tens of thousands of items, require answers to a bewildering number of complex technical questions, and entail difficult national security and foreign policy judgments.
“It would also require tremendous amounts of interagency coordination, a massive regulatory redrafting effort, extensive consultation with industry stakeholders and close coordination with Congress. Many said it couldn’t be done, including a number of people in this room.
“And we would not have gotten this far if it were not for the dedication of a remarkable group of public servants. I want to recognize them here. Dozens of people from more than eight agencies have been involved, but I want to recognize in particular Brian Nilsson at the National Security Staff, Eric Hirschhorn and Kevin Wolf at Commerce, Ellen Tauscher, Rose Gottemoeller, Bob Kovac, and Maureen Tucker at State, and Jim Miller, Jim Hursch, Tony Aldwell, Tim Hoffman, Mike Laychak, and Linda Lourie from Defense, as well as a number of other colleagues across the Executive Branch.
“This team basically reformed the export control system in their spare time – on top of managing the existing licensing system.
“And if that wasn’t enough, they’ve worked to keep the process going notwithstanding sequestration-related budget cuts and furloughs. They deserve a great round of appreciation.
“Let’s talk about what’s been done.
“At the core of the President’s export control reform initiative is a redefinition of the control lists. With your help, we developed a methodology for rebuilding the Munitions List and have deployed it in rebuilding and publishing 15 of the 21 categories.
“Eight of the 15 have been published in final form, with another 5 in final clearance now. That leaves us only 6 more proposed categories to go. This work remains our priority for the remainder of this year.
“But what does that mean in practice? The first 8 categories that have gone final account for about 35 percent of the State Department’s licenses but those licenses equate to over 80 percent of the value of exports subject to State control—that is, more than $75 billion of the more than $90 billion a year shipped under State Department licenses.
“When you also take into account the proposed rules we have published, more than 95 percent of our licenses and 95 percent of the value of exports is covered.
“We expect to see significant results from our revised rules in three ways:
“First, by better focusing our resources on the most significant items that we control, while allowing less significant items – like the 75 percent of our aircraft and gas turbine engine license applications that are for parts and components – to go to our allies without a license but with additional compliance measures. Not a de-control, but a prioritization of our controls.
“This will allow us to focus our enforcement resources on the most sensitive cases or, as former Under Secretary of State Ellen Tauscher is known to say, ’if you’re looking for a needle in a haystack, the first thing to do is to shrink the haystack.’
“Second, by increasing interoperability with our allies, by making it easier for U.S. companies to support U.S. systems that we sold to our allies. Based on a real example in Afghanistan, we should never again see an ally’s F-16 grounded because of the lack of a key part when two other allies there had the part, but could not transfer it from one to the other because of the need for a license back in Washington.
“Third, by strengthening the U.S. industrial base by reducing incentives for foreign manufacturers to avoid or design out U.S. content, particularly parts and components, because of our onerous one-size-fits-all controls.
“Sector after sector will benefit from our more flexible system. Our system will no longer encourage U.S. companies to move their research and development and manufacturing abroad, just to be outside the reach of our controls.
“You all know of cases where our controls drive production out of the U.S., sometimes leading the perverse situation in which our military is required to purchase products from the countries to which the controls were designed to deny exports in the first place.
“Those $90-plus billion in shipments under export licenses support over 500,000 high-paying jobs in the United States. Making it easier to provide after-market support to our allies who buy U.S. systems bolsters our manufacturers throughout the supply chain, ensuring that they can maintain and expand jobs here in America.
“Their survival is critical to maintaining the industrial base to meet our own defense needs and, therefore, is critical to both our economic security and our national security.
“The prioritization of our controls will not only benefit our allies and regime partners. All our trading partners will benefit from our new export control system that is more timely, predictable, and transparent. Our trading partners across the globe, from Brazil to India, will all benefit from the improvements we are making.
“The control lists and licensing are but half of our export control system. Take enforcement.
“As part of this reform initiative, we stood up the Export Enforcement Coordination Center – the ‘E2C2’ – bringing together law enforcement and intelligence capabilities from 8 departments and 15 agencies. When the E2C2 got off the ground, we discovered that 60 percent of new leads were already being worked, meaning that another department or agency either already had an investigation underway or had information to share that would be of help, and that there was significant potential that the uncoordinated actions of one agency might jeopardize the investigation of another.
“The E2C2’s de-confliction program, which coordinates new leads, means we are doing a much better job of using our resources and are building better cases.
“When we started this process, no two licensing agencies were on the same IT system. They didn’t know, let alone coordinate, their licensing decisions. By migrating all of the licensing agencies to a single licensing database, we are enhancing our ability to provide more timely decisions and, importantly, more informed ones. The State Department went “live” on the Defense Department’s USXPORTS system earlier this month and Commerce is moving that direction with the goal of the end of the year, contingent on sequestration-related delays.
Still, there is much work left to be done.
“For example, while the revision of the U.S. Munitions List is our current focus, ultimately, we’ll need to do the same sort of top-to-bottom scrub of the dual-use items currently on the Commerce Control List. That will involve a full review of the Export Administration Regulations and require one or more multilateral regimes to agree to the changes before they can be implemented in U.S. law. And this will require substantial additional time and resources.
“But as much work as we have ahead, I think it’s fair to say we have made major progress and are well on our way toward achieving the ultimate objective of an export control system that meets the needs of the 21st Century.
“We are committed to doing this work in an intensely transparent way. We have published every regulation in proposed form, aggressively sought comments from the public and taken those comments seriously. We have conducted hundreds of congressional briefings, public meetings, and training sessions, organized weekly conference calls to give status reports, and created on-line tools to help you work through the new regulations.
“We are also working on a bi-partisan or non-partisan basis. Our plan has the support of liberal and conservative groups and Democratic and Republican members of Congress. We are grateful to congressional members and staff who have facilitated the transfer of items from the U.S. Munitions List to the Commerce Control List and who have worked closely with us to enact the legislation that restored the President’s discretion to update the controls on the export of satellites and related items.
“Let me assure you that the President and his team are fully committed to ensuring that this reform initiative is successfully completed.
“In the near term, the Administration will see to it that the existing system is changed so that it increases interoperability with our close allies, reduces the incentives to design out or avoid U.S.-origin content, and allows us to focus our resources on transactions, end uses, and end users of the greatest concern.
“Controlling the export of less sensitive items to NATO and other multi-regime member countries differently than the items of most concern to the rest of the world makes sense for our national security and makes sense for our economic security. In fact, it just makes common sense.
“While I have the attention of a room full of exporters, let me say a word about trade policy. As President Obama has stated, our goal is to promote growth, create jobs here at home, and strengthen our middle class. To do so, USTR is working to open markets around the world so that we can expand our exports; to level the playing field so that our people can compete and win in the global economy; and to ensure that the rights and trade rules we have fought so hard for are fully implemented and enforced.
“From the Trans-Pacific Partnership, or TPP, to the Transatlantic Trade and Investment Partnership, or T-TIP, President Obama has laid out one of the most ambitious trade agendas in history.
“If we are successful in completing those agreements, we will open up free trade with 65 percent of the global economy, but we are also working to re-energize the WTO, to negotiate a high-standard Trade in Services Agreement, to strengthen the monitoring and enforcement of existing agreements and to use trade, not just aid, as a major driver of economic development around the world.
“It’s a lot. But we at USTR are committed to getting it right: to negotiate vigorously, to enforce vigorously, to reflect both American interests and American values, so that we ultimately give our workers, farmers and ranchers; our manufacturers and service providers; our innovators, creators, investors and businesses of all sizes the best chance to compete around the world.
“Thank you again for allowing me to join you today. I look forward to working with all of you to bring this reform initiative to a successful conclusion and to position the United States on even stronger footing to assure its economic and national security.”