Remarks by Ambassador Michael Froman at the Export Control Update Conference
November 1, 2016
Thanks very much, Eric, for your kind introduction. As you all know, nobody has spent more time and energy in the public sector or the private sector working on our Export Control system than Eric, and we owe you a huge debt of gratitude.
I personally thought I managed to escape the world of export controls when I became the U.S. Trade Representative, and I was delighted when Eric asked me to come back to this conference.
The only thing I would correct in his introduction, he said I agreed to the President’s request that I take on this assignment. That’s not exactly how I remember the conversation going. Anyone who has worked at the White House understands that the President’s requests are essentially his orders, and so, I’m delighted to be involved in this.
I guess I’m here because I was present at the creation of this round of export control reform, as Eric suggested. As many of you know, this started back in 2009 at a Cabinet retreat when President Obama asked the Cabinet to each identify one particular initiative that each one thought we should be focused on. Secretary of Defense Gates brought up export control reform, which the President had not been aware of before, and many of the Cabinet Members had not been aware of. Following that, he directed the Secretary of Defense, State, and Commerce, and the National Security Advisor to work on a fundamental reform of our export control system. He wanted us to make it responsive to the needs and realities of 21st century economy and national security situation. And we worked both to enhance our national security, and our economic security. And, he very much wanted us to make the new rules easier for industry to understand and comply with than the old ones, and make enforcement even more effective.
I believe it was Bob Gates who coined this phrase, that when it came to the enforcement of export control reform, it’s like looking for a needle in a haystack, and the first thing you need to do is shrink the haystack. And that’s what the export control reform effort was all about.
Little did I now then just how involved it would actually be.
Export control is not an issue that comes up in political campaign debates, and it doesn’t get a lot of press attention. Most Americans are not familiar with the issue of export control reform, but it is as important to our national security and our economic security as it is obscure.
There have been previous efforts to reform it. Dan Poneman, former Deputy Secretary of Energy, reminds me that he and I were involved in an earlier effort to reform the system in the 1990’s. But those efforts produced only partial results, and this time the team stayed on to get the whole job was done.
We succeeded, I think, for a couple of reasons. One, because the President gave us a very clear picture of what he wanted us to do, and that gave a mandate to do very hard, if unheralded, work in the detailed writing, rewriting, regulation, and procedures. And, it succeeded, very importantly, because we got input from a broad range of stakeholders, including the industries most affected by the export control regulations.
This was an extremely complex task that took us seven years to complete. It involved hundreds of thousands of military and satellite-related items, hundreds of pages of regulations, and billions of dollars in export sales. The end result was a top-to-bottom revision of the controls on military and satellite-related items on the munitions list.
Before we took this on, no two export licensing agencies were on the same IT system, so they were oblivious to one another’s licensing decisions. Now, there is one online system, USXPORTS, maintained by the Department of Defense and used by the State and Commerce Departments. It allows all the bureaus within those departments to have a hand in export licensing to communicate and coordinate their work. This was a badly needed improvement that will measurably speed up licensing decisions.
We determined from the beginning of this process, that the process should be fully transparent. We published every regulation in its proposed form and actively sought input from the public and from stakeholders. The comments we received were incredibly useful and the rules we ultimately finalized were better because of them.
One crucial aspect of the reform is that we imbedded in the export control system itself a process of regular revision and renewal of the regulations. Under the old system, the control lists rarely changed. Most remained static for decades and couldn’t easily be updated for changes in technology or for different national security threats. And, that made interoperability with our allies unnecessarily cumbersome.
We saw a consequence of that in Afghanistan a few years ago, when a U.S. ally’s F-16 was grounded for lack of a spare part. Two other allies had the part right there, but couldn’t give it to our ally, because they needed a license from Washington. The new rules were designed to prevent that from recurring by prioritizing our controls to focus on significant or sensitive items and letting less significant items go to our allies without a license.
Under our revised system, U.S. companies should be less concerned about non-US companies deliberately designing out U.S. content and avoiding U.S.-origin services with respect to less sensitive items. That translates of course into more well-paying jobs in the United States.
The roughly $200 billion in annual shipments of listed items subject to the Export Administration Regulations involve more than 300,000 exporters and support thousands of American jobs.
Since I have a captive audience of exporters, let me talk for a few moments, I’m sure you won’t be surprised, about the Obama Administration’s trade policies writ large and specifically about the Trans-Pacific Partnership.
We pursue these policies to promote growth, create jobs here at home, and strengthen our middle class. To do all that, we need to open markets around the world, so that we can increase our exports of goods and services; level the playing field with our trading partners so that our workers can compete and win. And we also work to ensure that the rights and trade rules we fought so hard to negotiate are fully implemented and enforced.
TPP will connect 12 Asia-Pacific economies representing 40 percent of global economy. Representing the highest standard trade agreement in history. Those standards are fully enforceable, whether in intellectual property rights, labor and environmental standards, or other commercial issues. And it reinforces the leadership role that the U.S. plays, not only in this region, but in the global economic system more generally.
The agreement eliminates 18,000 taxes on American exports to some of the world’s largest and fastest-growing markets in the world. It is the first trade agreement to require state-owned companies abroad to play by the same rules as private firms. It is the first trade agreement to take on the issues of the digital economy – to make sure there is a free flow of data across borders, and companies are not required to build their servers in each market in order to serve that market. To make sure that the Internet remains open and free, which is so important, not just to Internet companies but to any manufacturing or service company that relies on the free flow of information across borders.
As you know, the President very much wants Congress to act on TPP this year, and we are doing everything we can, across the Administration, whole-of-government, whole-of-White House to maximize the likelihood of that happening.
I cannot overemphasize what’s at stake. If Congress fails to act, the United States will be effectively frozen out of the Asia-Pacific region, economically and strategically. While our allies there wait to see whether TPP will move forward, China is moving ahead aggressively with its own agreement, the Regional Comprehensive Economic Partnership, or RCEP, which covers 16 countries stretching from India to Japan. Unlike TPP, it doesn’t have binding and enforceable labor and environmental regulations. It doesn’t provide for the free flow of data across borders. It doesn’t put disciplines on state-owned companies so they have to play on the same playing field fairly with private firms.
That is what is at stake here. If we don’t move and others move ahead without us, as they are already indicating they are going to do, we’re going to find ourselves, not only missing the opportunity for growth in these markets, but we’re going to find our current market share in these markets going down. That hurts our jobs, and firms back here at home.
If the United States walks away from TPP, it will leave a void that China is all too happy to fill, so it can impose its values and interests throughout the region – values and interests that are markedly different from our own.
If we walk away from TPP, our credibility will be damaged, not just in the Asia-Pacific, but more generally around the world. Our allies will wonder if we can be counted on to follow through on our commitments, and not just our trade commitments, but on the whole range of bilateral and multilateral initiatives we’re working on around the globe.
As Singaporean Prime Minister Lee put it, “if you are not prepared to deal when it comes to cars and services and agriculture, can we depend on you when it comes to security and military arrangements?”
The stakes are high and the choice is clear. As exporters, it’s important that your voices be heard in this debate as well.
Thanks again for inviting me here, and congratulations to Eric, to Kevin Wolf and Brian Nilsson and to the whole interagency team that have invested so much over the last seven years to get this done. Congratulations to the exporters for the reform, and thank you for all your support in this process.