[House Document 108-79]
[From the U.S. Government Publishing Office]



                                     

108th Congress, 1st Session - - - - - - - - - - - - - House Document 108-79


 
 PERIODIC REPORT ON THE NATIONAL EMERGENCY CAUSED BY THE LAPSE OF THE 
                   EXPORT ADMINISTRATION ACT OF 1979

                               __________

                             COMMUNICATION

                                  from

                   THE PRESIDENT OF THE UNITED STATES

                              transmitting

A 6-MONTH REPORT ON THE NATIONAL EMERGENCY DECLARED BY EXECUTIVE ORDER 
   13222 OF AUGUST 17, 2001, TO DEAL WITH THE THREAT TO THE NATIONAL 
 SECURITY, FOREIGN POLICY, AND ECONOMY OF THE UNITED STATES CAUSED BY 
  THE LAPSE OF THE EXPORT ADMINISTRATION ACT OF 1979, PURSUANT TO 50 
                  U.S.C. 1641(c) AND 50 U.S.C. 1703(c)




June 3, 2003.--Referred to the Committee on International Relations and 
                         ordered to be printed
                                           The White House,
                                          Washington, May 29, 2003.
Hon. J. Dennis Hastert,
Speaker of the House of Representatives,
Washington, DC.
    Dear Mr. Speaker: Consistent with section 204(c) of the 
International Emergency Economic Powers Act (50 U.S.C. 1703(c)) 
and section 401(c) of the National Emergencies Act (50 U.S.C. 
1641(c)), I transmit herewith a 6-month report prepared by my 
Administration on the national emergency declared by Executive 
Order 13222 of August 17, 2001, to deal with the threat to the 
national security, foreign policy, and economy of the United 
States caused by the lapse of the Export Administration Act of 
1979.
            Sincerely,
                                                    George W. Bush.
 Periodic Report on the National Emergency Caused by the Lapse of the 
Export Administration Act of 1979 for August 19, 2002, to February 19, 
                                  2003

    The following report fulfills the requirements of section 
204 of International Emergency Economic Powers Act (IEEPA) (50 
U.S.C. 1703), and section 401(c) of the National Emergencies 
Act (50 U.S.C. 1641(c)). These provisions require the President 
to report to the Congress every 6 months on, respectively, 
activities undertaken pursuant to the national emergency 
declared in Executive Order 13222 (issued August 17, 2001), and 
the total expenditures directly attributable to that 
declaration. The following combined activities and expenditures 
report covers the 6-month period from August 19, 2002, to 
February 19, 2003.
    Detailed information on export control activities is 
contained in the most recent Export Administration Annual 
Report and the January 2003 Report on Foreign Policy Export 
Controls, required by Section 14 and section 6(f) of the EAA, 
respectively, which the Department of Commerce continues to 
submit to the Congress under a policy of conforming actions 
under the Executive Order to the provisions of the EAA, as 
appropriate.
    Since the issuance of Executive Order No. 13222, the 
Department of Commerce has continued to administer and enforce 
the system of export controls, including the antiboycott 
provisions, contained in the Export Administration Regulations 
(EAR). In administering these controls, the Department has 
acted under a policy of conforming actions under Executive 
Order No. 13222 to the provisions of the EAA, insofar as 
appropriate.
    The expenses incurred by the Federal Government in the 6-
month period from August 19, 2002, to February 19, 2003, that 
are directly attributable to the exercise of authorities 
conferred by the declaration of a national emergency with 
respect to export controls, were largely centered in the 
Department of Commerce's Bureau of Industry and Security (BIS).
    Expenditures by the Department of Commerce for the 
reporting period are anticipated to be $28,749,000, most of 
which represents program operating costs, wage and salary costs 
for federal personnel, and overhead expenses.
    During the reporting period, there were several significant 
export control developments:

                      A. MULTILATERAL DEVELOPMENTS

The Wassenaar Arrangement
    The Wassenaar Arrangement is a multilateral regime 
consisting of 33 member countries. Its purpose is to contribute 
to regional and international security and stability by 
promoting transparency and greater responsibility in 
international transfers of conventional arms and dual-use goods 
and technologies. Wassenaar members maintain export controls on 
the agreed Wassenaar munitions and dual-use lists through their 
national policies.
    In September 2002, the Experts Group of the Wassenaar 
Arrangement agreed to definition and control list changes, 
including relaxed controls on analog-to-digital converters, the 
retention of software and technology controls for computers 
capable of greater than 28,000 million theoretical operations 
per second (MTOPS), updated controls on low-bit-rate digital 
voice used in command and control, and the retention of 
software and technology controls on the ``Sensitive List'' for 
certain machine tools.
    In October 2002, Wassenaar's General Working Group 
exchanged information on regions and projects of concern, 
exports of dual-use items, and the scope of dual-use 
notifications among members. Discussions also centered on 
combating terrorism, U.S. proposals for expanded reporting of 
conventional arms transfers, including the establishment of a 
reporting category for small arms and light weapons, 
strengthening dual-use notification procedures by establishing 
a denial consultation mechanism, and adopting ``catch-all'' 
controls.
    In December 2002, the Wassenaar Arrangement Plenary agreed 
to several significant initiatives to combat terrorism, 
including intensified cooperation among members to prevent the 
acquisition by terrorists of conventional arms and dual-use 
items and new means for sharing information to strengthen 
controls over such items. Agreement also was reached on ``best 
practices'' guidelines and criteria for the export of small 
armsand light weapons. To keep pace with advances in technology 
and developments in international security, the Plenary agreed to 
several control list amendments, including strengthened controls on 
radiation hardened integrated circuits. At the same time, taking into 
account the widespread availability of certain items and a broad 
diversity of suppliers, the Plenary agreed to raise the control 
threshold for computers and eliminate controls on general purpose 
microprocessors. Finally, the Plenary reached agreement on a Statement 
of Understanding that recognizes the importance of controlling arms 
brokering.
    The United States also continues to participate in 
submissions of export data by regime members. Wassenaar members 
make arms and dual-use data submissions on a semi-annual basis, 
in April and October, and specific data submissions as needed.

The Missile Technology Control Regime (MTCR)

    The MTCR is an informal nonproliferation regime comprised 
of 33 countries that have agreed to coordinate national export 
controls to prevent missile proliferation. Each member, under 
its own laws and practices, adheres to the export licensing 
policy reflected in the MTCR Guidelines for items on the MTCR 
Equipment, Software, and Technology Annex.
    The MTCR Plenary and Technical Experts Meeting were held in 
Warsaw, Poland, on September 21-27, 2002. Consensus was reached 
on several major technical issues, the most important being the 
definitions of missile range and payload, the parameters that 
determine if a missile system falls under the MTCR's purview. 
New controls on unmanned aerial vehicles designed or modified 
for aerosol delivery were tentatively agreed upon, and will go 
into effect in 6 months barring objections by MTCR members in 
the interim. Agreement also was reached on the refinement and/
or clarification of existing controls on propellants, 
navigation equipment, flight controls, and avionics.

The Nuclear Suppliers Group (NSG)

    The NSG is comprised of 40 Participating Governments that 
contribute to the nonproliferation of nuclear weapons by 
voluntary implementation of guidelines on the export of nuclear 
and nuclear-related dual-use items and through exchanges of 
information on nuclear proliferation concerns.
    The NSG agreed at an Extraordinary Plenary meeting in 
December 2002: (i) to adopt U.S. proposed anti-terrorism 
amendments to the NSG's Guidelines; (ii) to issue a press 
statement alerting supplier states to concerns about the North 
Korean (DPRK) nuclear weapons program; and (iii) to authorize 
the Chairman to communicate with key non-member supplier and 
transit states to alert them to the risks of diversion of 
controlled and non-controlled equipment, materials, and 
technology to the DPRK nuclear weapons program.

The Australia Group (AG)

    The Australia Group (AG) is an informal export control 
regime comprised of 33 members that seeks to impede the 
proliferation of chemical and biological weapons through the 
harmonization of export controls, information exchange on 
global proliferation activities, and outreach to non-members. 
Australia Group member countries meet annually and communicate 
intersessionally to review and refine the list of controlled 
chemicals, biological agents, and related equipment and 
technology.
    The AG convened a Technical Experts Meeting in Paris, 
France, during the week of February 10, 2003, to discuss the 
possible addition of new controls--as proposed by the United 
States--on certain chemical precursors and toxic chemicals. 
Export controls on biological agents, as well as U.S.-proposed 
control on agricultural sprayers that can be used in the 
delivery of biological agents, also were discussed. These 
issues will be discussed further at the AG Plenary in June 
2003.

The Chemical Weapons Convention (CWC)

    The CWC is an international treaty that bans chemical 
weapons and monitors the legitimate production, processing, 
consumption, export, and import of certain toxic chemicals and 
precursors that could contribute to the development of weapons 
of mass destruction. Certain export control provisions needed 
to implement the CWC are reflected in the EAR.

Firearms Convention

    The Inter-American Convention Against the Illicit 
Manufacturing of and Trafficking in Firearms, Ammunition, 
Explosives, and Other Related Materials (Firearms Convention) 
isa treaty that Organization of American States (OAS) member 
states signed to control the illicit trafficking of firearms. The 
Convention was signed in 1998 but awaits ratification by a number of 
OAS member states, including the United States. The Convention requires 
OAS member states to establish a program to issue authorizations for 
the import and export of firearms. Convention requirements relating to 
the export of firearms subject to the EAR have been implemented. 
However, those requirements pertaining to transit and explosives 
continue to be reviewed by an interagency working group.

   B. ENCRYPTION/HIGH PERFORMANCE COMPUTER AND MICROPROCESSOR POLICY

Encryption

    During the reporting period, BIS conducted seminars in 
Washington, D.C.; Minneapolis, Minnesota; and Santa Clara, 
California, on the June 2002 amendments to the encryption 
regulations. The Department of Commerce's Bureau of Industry 
and Security also continued to consult with industry and the 
interagency community on emerging technical and policy issues 
to assure the continued effectiveness of encryption export 
controls. The Department of Commerce's Bureau of Industry and 
Security also processed technical review requests and export 
license applications for a wide variety of products with 
encryption features.

High Performance Computer and Microprocessor Controls

    There were no revisions to high performance computer (HPC) 
export control policy during the reporting period. The 
Department of Commerce's Bureau of Industry and Security 
continued to work with industry and interagency expert groups 
to explore alternatives to the current HPC export control 
metric based on MTOPS.
    On January 14, 2003, BIS published a regulation that 
streamlined export controls on general purpose microprocessors, 
which are used worldwide in commercial applications, such as 
personal computers and cell phones. Under the new rule, a 
license only is required to export general purpose 
microprocessors to designated terrorism-supporting countries or 
to military end-uses or end-users in countries posing national 
security concerns (e.g., China and Russia). This action is 
consistent with a decision made by the Wassenaar Arrangement in 
February 2002 to decontrol general purpose microprocessors, and 
was necessary to ensure a level playing field for U.S. industry 
in the growing commercial market for microprocessors, yet 
protect U.S. national security interests.

             C. BILATERAL COOPERATION/TECHNICAL ASSISTANCE

    As part of the Administration's continuing effort to 
encourage other countries to strengthen their national export 
control systems, the Department of Commerce and other agencies 
conducted a wide range of export control cooperation 
discussions with a number of countries.

Singapore, Malaysia, and Thailand

    From October 11-23, 2002, Under Secretary of Commerce 
Kenneth I. Juster led a delegation consisting of 
representatives from the Departments of State and Commerce to 
Singapore, Malaysia, and Thailand. The purpose of the trip was 
to consult with senior government officials and industry 
representatives in these countries on trade security issues, 
including export control matters and the Department of 
Commerce's Transshipment Country Export Control Initiative 
(TECI). The trip also sought to gain support from the countries 
for the STAR Initiative (Secure Trade in the APEC Region) and 
to promote attendance by these countries in an international 
conference on transshipment and export control issues that was 
held in Bangkok from December 11-13, 2002. The Bangkok 
conference was organized and funded by the State Department's 
Export Control and Related Border Security Assistance (EXBS) 
program. As a result of this visit, each country agreed to 
participate in the conference in Bangkok, and BIS received a 
positive response and willingness to cooperate on trade 
security initiatives from senior government officials in all 
three countries.

India

    In furtherance of the November 2001 pledge by President 
Bush and Prime Minister Vajpayee to stimulate U.S.-India high-
technology commerce, Under Secretary Juster led an interagency 
delegation of senior officials from the Department of Commerce, 
the Department of State, and the White House to New Delhi, 
Mumbai, and Bangalore, India, from November 8-17, 2002. The 
purpose of the trip was to deliver the United States 
Governmentresponse to several Government of India proposals to 
stimulate U.S.-India high-technology trade. The U.S. delegation reached 
agreement with the Government of India on establishing the India-U.S. 
High Technology Cooperation Group, which will be a formal mechanism to 
discuss a wide range of high-technology trade issues, including 
sensitive export control issues. The U.S. delegation also presented 
facts that helped dispel Indian misperceptions that U.S. export 
controls on nuclear and missile items are a significant barrier to 
increased high-technology trade.

Panama

    From January 14-17, 2003. Under Secretary Juster led a 
delegation to Panama to consult with senior government 
officials on trade security issues and TECI. This trip also 
sought to promote participation in U.S. export control 
assistance programs. As a result of this visit, the Government 
of Panama agreed to cooperate with the United States on export 
controls and trade security and designated a governmental 
point-of-contact for future discussions on these matters.

Nonproliferation and Export Control International Cooperation Program

    During the reporting period, BIS's Nonproliferation and 
Export Control International Cooperation Programs (NEC) was 
involved in 27 technical exchanges on export controls, 
including: (i) a forum in August 2002 to initiate the U.S.-
India Export Control Cooperative Exchange Program; (ii) the 
Fourth International Conference on Export Controls in Warsaw, 
Poland, in October 2002; (iii) the Regional Forum on 
Transshipment Controls in Bangkok, Thailand, in December 2002; 
and (iv) a February 2003 meeting on the Regional Transit 
Agreement for the Caucasus and Central Asian for six 
participating countries, which concluded a 3-year effort to 
finalize a draft agreement and summary protocol.
    These exchanges sought to familiarize participating 
governments with the major elements of an effective export 
control system and to assist these governments in developing 
and strengthening their national export control systems. These 
elements include: (i) the necessary legal and regulatory 
framework, (ii) licensing procedures and control lists, (iii) 
enforcement mechanisms, (iv) industry-government relations, and 
(v) system administration and automation support. The intent of 
these programs is to reduce the proliferation threat from/
through these countries by strengthening their national export 
control systems.

              D. REGULATORY ACTIONS: PUBLISHED AND PENDING

    During the reporting period, BIS published several 
amendments to the EAR.
    On August 29, 2002, BIS published a rule amending several 
provisions of the EAR related to nuclear controls. The rule 
reformatted approximately 50 Export Control Classification 
Numbers (ECCNs) on the Commerce Control List (CCL) to make them 
conform more closely with the language used to identify such 
items on the European Union (EU) and Nuclear Suppliers Group 
(NSG) dual-use lists. The rule amended the EAR to reflect the 
membership of Belarus, Cyprus, Slovenia, and Turkey in the NSG.
    On September 18, 2002, BIS amended the EAR by clarifying 
that all production equipment and facilities related to the 
production of missile technology items described in ECCNs 
IB115, IB117, 9B115, 9B116 are subject to the EAR an controlled 
on the CCL.
    On September 23, 2002, BIS published a rule that revised 
the CCL to clarify which ``space qualified'' items identified 
under certain ECCNs are subject to the EAR. A separate rule 
published concurrently by the U.S. Department of State 
clarifies which ``space qualified'' items are on the U.S. 
Munitions List and, therefore, subject to the International 
Traffic in Arms Regulations. The rule also added ``regional 
stability'' as a reason for control for certain items in 
Category 6 of the CCL.
    On November 21, 2002, BIS published a notice removing S.B. 
Submarine Systems Co., Ltd. (located in the People's Republic 
of China), from the ``Unverified List.'' This action followed 
the completion of a post-shipment verification (PSV) at the 
company's facilities. BIS established the ``Unverified List'' 
with the publication of a notice in the Federal Register on 
June 14, 2002. The ``Unverified List'' consists of foreign 
endusers and consignees that have been involved in export 
transactions in which BIS officials (or other federal officials 
acting on BIS's behalf) have been unable to perform pre-
licensechecks or PSVs for reasons outside the control of the United 
States Government. Participation of a person on the ``Unverified List'' 
in any proposed export transaction is considered by BIS to raise a 
``red flag'' for purposes of the ``Know Your Customer'' guidance set 
forth in EAR. Under that guidance, the ``red flag'' requires heightened 
scrutiny by the exporter before proceeding with the transaction.
    On November 25, 2002, BIS amended the EAR to remove the 
special controls on the export and reexport of arms-related 
items imposed on July 14, 1998, on the Federal Republic of 
Yugoslavia (Serbia and Montenegro) (FRY). The rule also made a 
minor clarification to the arms embargo-based controls in place 
with respect to Rwanda pursuant to UNSC Resolution 918 of May 
17, 1994.
    On January 14, 2003, BIS published a revision to the EAR 
regarding export controls on general purpose microprocessors. 
This rule streamlined export controls on general purpose 
microprocessors. A license is now required only for the export 
of general purpose microprocessors to designated terrorism-
supporting countries or to military end-users or end-users in 
countries posing national security concerns.

                     E. EXPORT LICENSE INFORMATION

    During the reporting period, BIS continued to receive many 
requests for export licensing information through the Freedom 
of Information Act and through discovery requests during 
enforcement proceedings. Consistent with section 12(c) of the 
EAA, BIS continues to withhold from public disclosure 
information obtained for the purpose of consideration of, or 
concerning, export license applications, unless the release of 
such information is determined by the Under Secretary of 
Industry and Security to be in the national interest, pursuant 
to Executive Order No. 13222's directive to carry out the 
provisions of the EAA, to the extent permitted by law.
    During the reporting period, BIS submitted reports to the 
Congress on the actions taken relating to exports of 
agricultural commodities to Cuba. Section 906(b) of the Trade 
Sanctions Reform and Export Enhancement Act of 2000 (TSRA) 
(Title IX of Pub. L. 106-387), as amended, requires the 
submission of quarterly reports. Two reports were submitted to 
the Congress during this reporting period. The first report 
covered July-September 2002, and the second covered October-
December 2002. Section 906(c) of the TSRA requires the 
submission of a biennial report to the Congress. BIS submitted 
its first such report, covering the 2-year period since the 
enactment of TSRA, on October 28, 2002.

   F. OFFICE OF INSPECTOR GENERAL AND THE GENERAL ACCOUNTING OFFICE 
                                STUDIES

    During the reporting period, BIS continued its cooperation 
with the Office of Inspector General (OIG) and the General 
Accounting Office (GAO). Specifically, the OIG initiated two, 
continued two, and closed one study during this time. The GAO 
initiated eight, continued 15, and closed 15 studies during 
this time frame.

                         G. EXPORT ENFORCEMENT

    In the reporting period, BIS through its offices of 
Enforcement Analysis, Export Enforcement, and Antiboycott 
Compliance, continued its programs to prevent diversions of 
controlled items, investigate and enforce export control 
violations, and enforce U.S. antiboycott rules.

Office of Enforcement Analysis

    In the reporting period, Office of Enforcement Analysis 
(OEA) continued to improve its visa Review Program. This 
program targets visa applications of foreign nationals who may 
be entering the United States to access technology controlled 
for national security reasons or to procure items useful for 
weapons of mass destruction programs.
    Office of Enforcement Analysis activities also include a 
plan to target and prioritize pre-license checks (PLC) and post 
shipment verifications (PSV) to ensure that such end-use visits 
reflect the full range of U.S. export control concerns. PLCs 
validate information on export license applications, including 
end-user reliability. PSVs strengthen assurances that 
exporters, shippers, consignees, and end users comply with the 
terms of export licenses. The overall objective for conducting 
PLCs and PSVs is to detect and prevent the illegal transfer of 
controlled U.S.-origin items.
    On December 31, 2002, as required by the National 
DefenseAuthorization Act for FY 1998 (NDAA), BIS delivered to the 
Congress its fifth annual report on HPC exports to Computer Tier 3 
countries (e.g., China and Russia), compiled by OEA.

Office of Export Enforcement

    During the reporting period, Office of Export Enforcement 
(OEE) opened 346 investigations, some of which led to both 
criminal and administrative sanctions. A total of $2,114,000 in 
civil penalties and criminal fines were imposed for violations 
during this period. OEE also issued 11 warning letters in cases 
of minor violations, informing the recipients that OEE had 
reason to believe they had violated the EAR and that increased 
compliance efforts were warranted.
    Significant enforcement activities during the reporting 
period included:
    On November 4, 2002, BIS announced that Sigma-Aldrich 
Corporation of St. Louis, Missouri, and two of its subsidiaries 
agreed to pay a $1,760,000 fine to settle charges involving 
illegal exports of biological toxins. The settlement was 
reached after a significant legal ruling in the Commerce 
Department's favor by an administrative law judge adjudicating 
the dispute. The penalty is the largest imposed by the Commerce 
Department in a case involving biological toxins, and one of 
the largest penalties ever paid to the Department for export 
control violations.
    On January 7, 2003, BIS announced that Silicon Graphics, 
Inc. (SGI), of Mountain View, California, pled guilty to 
charges that SGI had violated Commerce Department regulations 
by illegally exporting high performance computers to a Russian 
nuclear weapons laboratory in 1996. SGI agreed to pay $1 
million in criminal fines to resolve the charges. In a related 
administrative case, SGI agreed to pay $182,000, the maximum 
penalty authorized under the EAR, to settle civil charges 
arising from the same exports.

Office of Antiboycott Compliance (OAC)

    Office of Antiboycott Compliance implements the antiboycott 
provisions of the EAA and the EAR. Office of Antiboycott 
Compliance performs three main functions: (i) enforcing the 
EAR, (ii) assisting the public in complying with antiboycott 
provisions, and (iii) compiling and analyzing information 
regarding international boycotts. During the reporting period, 
OAC opened five cases and closed 12 investigations. Office of 
Antiboycott Compliance also made six public presentations on 
the antiboycott regulations.
    Office of Antiboycott Compliance enforcement activities 
involved an agreement pursuant to which Mercator, Inc., an 
Englewood Cliffs, New Jersey exporter, agreed to pay a $30,000 
civil penalty to settle allegations that Mercator violated the 
antiboycott regulations and U.S. export control laws in 
connection with shipment of chemicals to Iran through the 
United Arab Emirates. This was a joint case developed by the 
OAC and BIS's Boston Field Office.
    Office of Antiboycott Compliance also assisted the public 
in complying with the antiboycott provisions by responding to 
558 requests for advice on application of the antiboycott 
provisions to specific export transactions. Also, OAC 
participated in public presentations on compliance with the 
antiboycott regulations at six conferences and seminars in 
Detroit, Boston, Orlando, and Washington, D.C.

                                
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