[Congressional Record (Bound Edition), Volume 154 (2008), Part 8]
[Senate]
[Pages 10437-10442]
[From the U.S. Government Publishing Office, www.gpo.gov]




                         EXPORT CONTROL SYSTEM

  Mr. AKAKA. Mr. President, I wish today to discuss the U.S. export 
control system bureaucracy and its impact on our national interests.
  Recently I chaired a hearing of the Oversight of Government 
Management Subcommittee of the Senate Homeland Security and 
Governmental Affairs Committee entitled ``Beyond Control: Reforming 
Export Licensing Agencies for National Security and Economic 
Interests.'' Some of the issues explored in the hearing were: revising 
the multilateral coordination and enforcement aspects of export 
controls; addressing weaknesses in the interagency process for 
coordinating and approving licenses; reviewing alternative bureaucratic 
structures or processes to eliminate exploitable seams in our export 
control system; and ensuring that there are enough qualified licensing 
officers to review efficiently license applications.
  Witnesses from the State Department's Bureau of Political-Military 
Affairs, the Commerce Department's Bureau of Industry and Security, and 
the Department of Defense's Defense Technology Security Administration 
responded to almost a decade's worth of analysis, recommendations, 
reports, and testimony from the Government Accountability Office, GAO. 
The GAO witness on the panel identified numerous instances of 
inefficiency and ineffectiveness in the U.S. export control system, 
including poor strategic management, insufficient interagency 
coordination, shortages of manpower, short-term fixes for long-term 
problems, and inadequate information systems.
  Although the agency witnesses acknowledged their progress in 
addressing these shortcomings, they also articulated a deeper need for 
greater reform in response to the challenges of globalization in the 
21st century. I would go one step further then the administration 
witnesses. The U.S. export control system is a relic of the Cold War 
and does not effectively meet our national and economic security needs.
  Recent examples demonstrate the challenges of controlling sensitive 
exports. Dual-use technology has been diverted through Britain and the 
United Arab Emirates, UAE, to Iran. A recent attempt by two men to 
smuggle sensitive thermal imaging equipment to China shows that Iran is 
not alone in its desire for sensitive technology. However, the effort 
to control the flow of dual-use technology goes beyond our borders. 
Working with the international community is critical as technologies 
which were once only produced in the U.S. are now being produced 
elsewhere.
  The second group of witnesses, representing many decades of 
government and private sector experience with export controls, 
identified recommendations that could begin to modernize this system: 
eliminating the distinction between weapons and dual-use technology; 
reducing the total number of items on control lists; implementing 
project licenses that cover a multitude of items instead of relying on 
an item-by-item licensing process; passing an updated Export 
Administration Act; focusing on multilateral export controls and 
harmonizing them with our allies; and reestablishing high-level policy 
management of both dual-use and munitions exports at the White House. 
Mr. President, I would like to ask to have

[[Page 10438]]

printed in the Record, following my remarks, a CRS memorandum providing 
an excellent overview of U.S export controls.
  An opportunity to revise our ineffective and inefficient export 
control system will accompany the arrival of the new administration in 
January. I urge my colleagues to consider these recommendations for 
improving the management and bureaucracy of the export control system 
as the Congress debates and updates relevant legislation.
  Mr. President, I ask unanimous consent to have the two CRS memoranda 
to which I referred printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:


                               Congressional Research Service,

                                   Washington, DC, April 21, 2008.

                               Memorandum

     Re: Background for Hearing on U.S. Export Controls.
     To: Senate Homeland Security and Government Affairs 
         Committee; Subcommittee on Oversight of Government 
         Management; the Federal Workforce; and the District of 
         Columbia.

     From: Ian F. Fergusson, Specialist in International Trade and 
         Finance; Richard F. Grimmett, Specialist in National 
         Defense, Foreign Affairs, Defense, and Trade Division.

       This memorandum responds to your request for background 
     information in support of your upcoming hearing on the U.S. 
     export control system. The memo discusses the legislative 
     authority, structure, and function of U.S. dual-use and 
     defense export controls. It also discusses current issues 
     related to the administration of those controls. If you have 
     any questions concerning the material in this memorandum, 
     please contact Ian Fergusson at 7-4997 or Richard Grimmett at 
     7-7675.

               Overview of the U.S. Export Control System

       The United States restricts the export of defense items or 
     munitions, so-called ``dual-use'' goods and technology, 
     certain nuclear materials and technology, and items that 
     would assist in the proliferation of nuclear, chemical and 
     biological weapons or the missile technology to deliver them. 
     Defense items are defined by regulation as those 
     ``specifically designed, developed, or configured, adapted, 
     or modified for a military application, has neither 
     predominant civilian application nor performance equivalent 
     to an item used for civilian application, or has significant 
     military or intelligence application ``such that control is 
     necessary.'' Dual-use goods are commodities, software, or 
     technologies that have both civilian and military 
     applications.
       U.S. export controls are also utilized to restrict exports 
     to certain countries in which the United States imposes 
     economic sanctions. Through the Export Administration Act 
     (EAA), the Arms Export Control Act (AECA), and other 
     authorities, Congress has delegated to the executive branch 
     its express constitutional authority to regulate foreign 
     commerce by controlling exports. In its administration of 
     this authority, the executive branch has created a diffuse 
     system by which exports are controlled by differing agencies 
     under different regulations. This section describes the 
     characteristics of the dual-use, munitions, and nuclear 
     controls. The information contained in the section also 
     appears in chart form in Appendix 1.
       Various aspects of this system have long been criticized by 
     exporters, non-proliferation advocates and other stakeholders 
     as being too rigorous, insufficiently rigorous, lax, 
     cumbersome, too stringent, or any combination of these 
     descriptions. In January 2007, the Government Accountability 
     Office (GAO) designated government programs designed to 
     protect critical technologies, including the U.S. export 
     control system, as a `high-risk area' ``that warrants a 
     strategic re-examination of existing programs to identify 
     needed changes.'' The report cited poor coordination among 
     export control agencies, disagreements over commodity 
     jurisdiction between State and Commerce, unnecessary delays 
     and inefficiencies in the license application process, and a 
     lack of systematic evaluative mechanisms to determine the 
     effectiveness of export controls.


                          The Dual-Use System

       The Export Administration Act (EAA). The EAA of 1979 (P.L. 
     96-72) is the underlying statutory authority for dual-use 
     export controls. The EAA, which is currently expired, 
     periodically has been reauthorized for short periods of time. 
     The last incremental extension expired 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) (P.L. 95-223). 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 (see below), and it 
     provides some guidance and places certain limits on that 
     authority.
       Several attempts to rewrite or reauthorize the EAA have 
     occurred over the years. The last comprehensive effort took 
     place during the 107th Congress. The Senate adopted 
     legislation, S. 149, in September 2001, and a competing House 
     version, H.R. 2581, was developed by the then House 
     International Relations Committee, and the House Armed 
     Services Committee. The full House did not act on this 
     legislation. More modest attempts to update the penalty 
     structure and enforcement mechanisms in context of renewing 
     the 1979 Act for a period of 5 years has been introduced in 
     the 110th Congress as the Export Enforcement Act of 2007 (S. 
     2000).
       The EAA, which was written and amended during the Cold War, 
     was 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 25 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 carefully.
       Administration. The Bureau of Industry and Security in the 
     Department of Commerce administers the dual-use export 
     control system. The export licensing and enforcement 
     functions that now form the agency mission of BIS were 
     detached from the International Trade Administration in 1980 
     in order to separate it from the export promotion functions 
     of the Department of Commerce. In FY2006, BIS processed 
     18,941 licenses with a value of approximately $36 billion. 
     During the same fiscal year, BIS approved 15,982 
     applications, denied 189, and returned 2,763 (usually because 
     a license was not necessary), for an approval rate of 98.8%, 
     disregarding the returned licenses. BIS was appropriated 
     $72.9 million in FY2008 with budget authority for 365 
     positions. The President's FY2009 request for BIS is $83.7 
     million, a 14.8% increase from FY2008, with budget authority 
     for 396 positions. In addition to its export licensing and 
     enforcement functions, BIS also enforces U.S. anti-boycott 
     regulations concerning the Arab League boycott against 
     Israel.
       Implementing Regulations. The EAA is implemented by the 
     Export Administration Regulations (EAR) (15 CFR 730 et seq). 
     As noted above, the EAR is continued under the authority of 
     the International Economic Emergency Powers Act (IEEPA) in 
     times when the EAA is expired. The EAR sets forth licensing 
     policy for goods and destinations, the applications process 
     used by exporters, and the Commerce Control List (CCL). The 
     CCL is the list of specific goods, technology, and software 
     that are controlled by the EAR. The CCL is composed of ten 
     categories of items: Nuclear materials, facilities, and 
     equipment; materials, organisms, microorganisms, and toxins; 
     materials processing; electronics; computers; 
     telecommunications and information security; lasers and 
     sensors; navigation and avionics; marine; and propulsion 
     systems, space vehicles, and related equipment. Each of these 
     categories is further divided into functional groups: 
     Equipment, assemblies, and components; test, inspection, and 
     production equipment; materials; software; and technology. 
     Each controlled item has an export control classification 
     number (ECCN) based on the above categories and functional 
     group. Each ECCN is accompanied by a description of the item 
     and the reason for control. In addition to discrete items on 
     the CCL, nearly all U.S. origin commodities are ``subject to 
     the EAR.'' This means that any product ``subject to the EAR'' 
     may be restricted to a destination based on the end-use or 
     end-user of the product. For example, a commodity that is not 
     on the CCL may be denied if the good is destined for a 
     military end-use, or to an entity known to be engaged in 
     proliferation.
       Licensing Policy. The EAR sets out the licensing policy for 
     dual-use commodities. Items are controlled for reasons of 
     national security, foreign policy, or short-supply. National 
     security controls are based on a common multilateral control 
     list, however the countries to which we apply those controls 
     are based on U.S. policy. Foreign Policy controls may be 
     unilateral or multilateral in nature. Items are controlled 
     unilaterally for anti-terrorism, regional stability, or crime 
     control purposes. Anti-terrorism controls proscribe nearly 
     all exports to the 5 state sponsors of terrorism. Foreign 
     policy-based controls are also based on adherence to 
     multilateral non-proliferation control regimes such the 
     Nuclear Suppliers' Group, the Australia Group (chemical and 
     biological precursors), and the Missile Technology Control 
     Regime.
       The EAR sets out timelines for the consideration of dual-
     use licenses and the process for resolving interagency 
     disputes. Within 9 days from receipt, Commerce must refer the 
     license to other agencies (State, Defense, or NRC as 
     appropriate), grant the license, deny

[[Page 10439]]

     it, seek additional information, or return it. If the license 
     is referred to other agencies, the agency to which it is 
     referred must recommend the application be approved or denied 
     within thirty days. The EAR provides a dispute resolution 
     process for a dissenting agency to appeal an adverse 
     decision. The interagency dispute resolution process is 
     designed to be completed within 90 days. This process is 
     depicted graphically in Appendix 2.
       Enforcement and Penalties. Because of the expiration of the 
     EAA, current penalties for export control violations are 
     based on those contained in the International Emergency 
     Economic Powers Act (IEEPA) (50 U.S.C. 1701 et seq.). For 
     criminal penalties, IEEPA sanctions individuals up to $1 
     million or up to 20 years imprisonment, or both, per 
     violation [50 U.S.C. 1705(b)]. Civil penalties under IEEPA 
     are set at $250,000 per violation. IEEPA penalties were 
     recently raised to the current levels by the International 
     Emergency Economic Powers Enhancement Act (P.L. 110-96), 
     which was signed by President Bush on October 16, 2007.
       Enforcement is carried out by the Office of Export 
     Enforcement (OEE) at BIS. OEE has a staff of approximately 
     164 in Washington and eight domestic field offices. OEE is 
     authorized to carry out investigations domestically and works 
     with Department of Homeland Security (DHS) to conduct 
     investigations overseas. OEE also conducts pre-license and 
     post-shipment verification along with in-country U.S. embassy 
     officials overseas.
       The Export Enforcement Act of 2007. One of the persistent 
     concerns about the administration of the dual-use system is 
     that it operates under the emergency authority of the 
     International Economic Emergency Powers Act (IEEPA), the 
     underlying EAA having last expired in 2001. On August 3, 
     2007, the administration-supported Export Enforcement Act of 
     2007 (S. 2000) was introduced by Senator Dodd. The draft bill 
     would reauthorize the Export Administration Act for five 
     years and amend the penalty and enforcement provisions of the 
     Act. 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 FAA, the base 
     penalty was the greater of $50,000 or 5 times the value of 
     the export, or five years imprisonment. 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 enforcement provisions of the Administration proposal 
     would expand the authority of the Department of Commerce to 
     investigate potential violations of EAA overseas. It provides 
     for enforcement authority at other places at home and abroad 
     with the concurrence of the Department of Homeland Security. 
     The proposed draft 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 included new language governing the use 
     of funds for undercover investigations and operations and 
     establishes audit and reporting requirements for such 
     investigations. It also authorized wiretaps in enforcement of 
     the act.
       Some in the industry community have criticized the 
     legislation for focusing on penalties and enforcement without 
     addressing business concerns such as streamlining the license 
     process. While the Administration favors the 5 year renewal 
     period of the current EAA as a period in which a new export 
     control system may be devised, the length of the extension 
     may also serve to take the pressure off such reform efforts.


                        Military Export Controls

       Arms Export Control Act of 1976 (AECA). The AECA provides 
     the statutory authority for the control of defense articles 
     and services. It sets out foreign and national policy 
     objectives for international defense cooperation and military 
     export controls. Section 3(a) of the Arms Export Control Act 
     (AECA) sets forth the general criteria for countries or 
     international organizations to be eligible to receive United 
     States defense articles and defense services provided under 
     the act. It also sets express conditions on the uses to which 
     these defense items maybe put. Section 4 of the Arms Export 
     Control Act states that U.S. defense articles and defense 
     services shall be sold to friendly countries ``solely'' for 
     use in ``internal security,'' for use in ``legitimate self-
     defense,'' to enable the recipient to participate in 
     ``regional or collective arrangements or measures consistent 
     with the Charter of the United Nations,'' to enable the 
     recipient to participate in ``collective measures requested 
     by the United Nations for the purpose of maintaining or 
     restoring international peace and security,'' and to enable 
     the foreign military forces ``in less developed countries to 
     construct public works and to engage in other activities 
     helpful to the economic and social development of such 
     friendly countries.'' The AECA also contains the statutory 
     authority for the Foreign Military Sales program, under which 
     the U.S. government sells U.S. defense equipment, services, 
     and training on a government-to-government basis.
       Licensing Policy. The International Traffic in Arms 
     Regulations (ITAR) sets out licensing policy for exports (and 
     some temporary imports) of U.S. Munitions List (USML) items. 
     A license is required for the export of nearly all items on 
     the USML. Canada has a limited exemption as it is considered 
     part of the U.S. defense industrial base. In addition, the 
     United States has recently signed treaties with the United 
     Kingdom and Australia to exempt certain defense articles from 
     licensing obligations to approved end-users in those 
     countries. These treaties must be ratified by the Senate. 
     Unlike some Commerce controls, licensing requirements are 
     based on the nature of the article and not the end-use or 
     end-user of the item. The United States prohibits munitions 
     exports to countries either unilaterally or based on 
     adherence to United Nations arms embargoes. In addition, any 
     firm engaged in manufacturing, exporting, or brokering any 
     item on the USML must register with DDTC and pay a yearly 
     fee, currently $1,750, whether it seeks to export or not 
     during the year.
       Congressional Requirements. A prominent feature of the AECA 
     is the requirement of congressional consideration of foreign 
     arms sales proposed by the President. This procedure includes 
     consideration of proposals to sell major defense equipment, 
     defense articles and services, or the re-transfer to other 
     nations of such military items. The procedure is triggered by 
     a formal report to Congress under Sections 36 of the Arms 
     Export Control Act (AECA). In general, the executive branch, 
     after complying with the terms of applicable section of U.S. 
     law, usually those contained in the Arms Export Control Act, 
     is free to proceed with an arms sales proposal unless 
     Congress passes legislation prohibiting or modifying the 
     proposed sale.
       The traditional sequence of events for the congressional 
     review of an arms sale proposal has been the submission by 
     the Defense Department (on behalf of the President) of a 
     preliminary or ``informal'' classified notification of a 
     prospective major arms sale 20 calendar-days before the 
     executive branch takes further formal action. This 
     ``informal'' notification is submitted to the Speaker of the 
     House (who traditionally has referred it to the House Foreign 
     Affairs Committee), and to the Chairman of the Senate Foreign 
     Relations Committee. This practice stems from a February 18, 
     1976, letter of the Defense Department making a nonstatutory 
     commitment to give Congress these preliminary classified 
     notifications. It has been the practice for such ``informal'' 
     notifications to be made for arms sales cases that would have 
     to be formally notified to Congress under the provisions of 
     Section 36(b) of the Arms Export Control Act (AECA). These 
     ``informal'' notifications always precede the submission of 
     the required statutory notifications, but the time period 
     between the submission of the ``informal'' notification and 
     the statutory notification is not fixed. It is determined by 
     the President. He has the obligation under the law to submit 
     the arms sale proposal to Congress, but only after he has 
     determined that he is prepared to proceed with any such 
     notifiable arms sales transaction.
       Under Section 36(b) of the Arms Export Control Act, 
     Congress must be formally notified 30 calendar-days before 
     the Administration can take the final steps to conclude a 
     government-to-government foreign military sale of major 
     defense equipment valued at $14 million or more, defense 
     articles or services valued at $50 million or more, or design 
     and construction services valued at $200 million or more. In 
     the case of such sales to NATO member states, NATO, Japan, 
     Australia, or New Zealand, Congress must be formally notified 
     15 calendar-days before the Administration can proceed with 
     the sale. However, the prior notice thresholds are higher for 
     NATO members, Australia, Japan or New Zealand. These higher 
     thresholds are: $25,000,000 for the sale, enhancement or 
     upgrading of major defense equipment; $100,000,000 for the 
     sale, enhancement or upgrading of defense articles and 
     defense services; and $300,000,000 for the sale, enhancement 
     or upgrading of design and construction services, so long as 
     such sales to these countries do not include or involve sales 
     to a country outside of this group of nations.
       Commercially licensed arms sales also must be formally 
     notified to Congress 30 calendar-days before the export 
     license is issued if they involve the sale of major defense 
     equipment valued at $14 million or more, or defense articles 
     or services valued at $50 million or more (Section 36(c) 
     AECA). In the case of such sales to NATO member states, NATO, 
     Japan, Australia, or New Zealand, Congress must be formally 
     notified 15 calendar-days before the Administration can 
     proceed with such a sale. However, the prior notice 
     thresholds are higher for sales to

[[Page 10440]]

     NATO members, Australia, Japan or New Zealand specifically: 
     $25,000,000 for the sale, enhancement or upgrading of major 
     defense equipment; $100,000,000 for the sale, enhancement or 
     upgrading of defense articles and defense services, and 
     $300,000,000 for the sale, enhancement or upgrading of design 
     and construction services, so long as such sales to these 
     countries do not include or involve sales to a country 
     outside of this group of nations. It has not been the general 
     practice for the Administration to provide a 20-day 
     ``informal'' notification to Congress of arms sales proposals 
     that would be made through the granting of commercial 
     licenses.
       A congressional recess or adjournment does not stop the 30 
     calendar-day statutory review period. It should be emphasized 
     that after Congress receives a statutory notification 
     required under Sections 36(b) or 36(c) of the Arms Export 
     Control Act, for example, and 30 calendar-days elapse without 
     Congress having blocked the sale, the executive branch is 
     free to proceed with the sales process. This fact does not 
     mean necessarily that the executive branch and the 
     prospective arms purchaser will sign a sales contract and 
     that the items will be transferred on the 31st day after the 
     statutory notification of the proposal has been made. It 
     would, however, be legal to do so at that time.
       Administration. Exports of defense goods and services are 
     administered by the Directorate of Defense Trade Controls 
     (DDTC) at the Department of State. DDTC is a component of the 
     Bureau of Political-Military Affairs and consists of four 
     offices: Management, Policy, Licensing, and Compliance. In 
     FY2008, DDTC was funded at a level of $12.7 million and had a 
     staff of 78 ($6.6 million for licensing activities, 44 
     licensing officers). In the 12 months ending March 2008, DDTC 
     completed action on 83,886 export license applications, and 
     its FY2009 budget request reported that license application 
     volumes have increased by 8% a year. DDTC's FY2009 budget 
     request, however, did not ask for additional staffing and its 
     budget request called for an increase of $0.4 million to 
     $13.1 million ($6.9 million for licensing activities). On 
     March 24, 2008, 19 Members of Congress wrote to the 
     Chairwoman and Ranking Member of the House State and Foreign 
     Operations Appropriations Subcommittee to request a funding 
     level of $26 million, including $8 million collected yearly 
     from registration fees. Senator Biden, in his Foreign 
     Relations Views and Estimates letter to the Senate Budget 
     Committee also described DDTC as ``seriously understaffed'' 
     and suggested ``a doubling of that figure ($6.9 million for 
     licensing) is warranted.
       Critics of the defense trade system have long decried the 
     delays and backlogs in processing license applications at 
     DDTC. The new National Security Presidential Directive (NSPD-
     56), signed by President Bush on January 22, 2008, directed 
     that the review and adjudication of defense trade licenses 
     submitted under ITAR are to be completed within 60 days, 
     except where certain national security exemptions apply. 
     Previously, except for the Congressional notification 
     procedures discussed above, DDTC had no defined time-line for 
     the application process. DDTC's backlog of open cases, which 
     had reached 10,000 by the end of 2006, has been reduced to 
     3,458 by March 2008. During this period, average processing 
     time of munitions license applications have also trended 
     downward from 33 days to 15 days. However, GAO reported in 
     November 2007 that DDTC was using ``extraordinary measures--
     such as extending work hours, canceling staff training, 
     meeting, and industry outreach, and pulling available staff 
     from other duties in order to process cases'' to reduce the 
     license backlog, measures that it described as unsustainable.
       Enforcement and Penalties. The AECA provides for criminal 
     penalties of $1 million or ten years for each violation, or 
     both. AECA also authorizes civil penalties of up to $500,000 
     and debarment from future exports. DDTC has a small 
     enforcement staff (18 in the Office of Defense Trade 
     Compliance) and works with the Defense Security Service and 
     the Customs and Border Protection (CBP) and Immigration and 
     Customs Enforcement (ICE) units at the Department of Homeland 
     Security (DHS). DDTC assists the DHS and the Department of 
     Justice in pursuing criminal investigations and prosecutions. 
     DDTC also coordinates the Blue Lantern end-use monitoring 
     program, in which U.S. embassy officials in-country conduct 
     pre-license checks and post-shipment verifications. In 
     FY2006, DDTC completed 489 end-use cases, 94 (19%) of which 
     were determined to be unfavorable.

                                Nuclear

       A subset of the abovementioned dual-use and military 
     controls are controls on nuclear items and technology. 
     Controls on nuclear goods and technology are derived from the 
     Atomic Energy Act as well as from the EAA and the AECA. 
     Controls on nuclear exports are divided between several 
     agencies based on the product or service being exported. The 
     Nuclear Regulatory Commission regulates exports of nuclear 
     facilities and material, including core reactors. The NRC 
     licensing policy and control list is located at 10 C.F.R. 
     110. BIS licenses ``outside the core'' civilian power plant 
     equipment and maintains the Nuclear Referral List as part of 
     the CCL. The Department of Energy controls the export of 
     nuclear technology. DDTC exercises licensing authority over 
     nuclear items in defense articles under the ITAR.


           Defense Technology Security Administration (DTSA)

       DTSA is located in the Department of Defense, Office of the 
     Under Secretary of Defense for Policy under the Assistant 
     Secretary of Defense for Global Security Affairs. DTSA 
     coordinates the technical and national security review of 
     direct commercial sales export licenses and commodity 
     jurisdiction requests received from the Departments of 
     Commerce and State. It develops the recommendation of the DOD 
     on these referred export licenses or commodity jurisdictions 
     based on input provided by the various DOD departments and 
     agencies and represents DOD in the interagency dispute 
     resolution process. In calendar year 2007, DTSA completed 
     41,689 license referrals. Not all licenses from DDTC or BIS 
     are referred to DTSA; memorandums of understanding govern the 
     types of licenses referred from each agency. DTSA coordinates 
     the DOD position with regard to proposed changes to the 
     International Traffic in Arms Regulations (ITAR) and the 
     Export Administration Regulations (EAR). It also represents 
     the DOD in interagency fora responsible for compliance with 
     multinational export control regimes. For FY2008, DTSA had a 
     staff of 187 civilian and active duty military employees and 
     received funding of $23.3 million.

                                APPENDIX 1: BASIC EXPORT CONTROL CHARACTERISTICS
----------------------------------------------------------------------------------------------------------------
            Characteristic                     Dual-Use                Munitions                 Nuclear
----------------------------------------------------------------------------------------------------------------
Legislative Authority................  Export Administration    Arms Export Control Act  Atomic Energy Act of
                                        Act (EAA) of 1979        of 1976 (AECA).          1954.
                                        (expired);
                                        International
                                        Emergency Economic
                                        Powers Act of 1977
                                        (IEEPA).
Agency of Jurisdiction...............  Bureau of Industry and   Directorate of Defense   Nuclear Regulatory
                                        Security (BIS)           Trade Controls (DDTC)    Commission (NRC)
                                        (Commerce).              (State).                 (facilities and
                                                                                          material); Department
                                                                                          of Energy (DOE)
                                                                                          (technology); BIS
                                                                                          (`outside the core'
                                                                                          civilian power plant
                                                                                          equipment); DDTC
                                                                                          (nuclear items in
                                                                                          defense articles).
Implementing Regulations.............  Export Administration    International Traffic    10 C.F.R. 110--Export
                                        Regulations (EAR).       in arms Regulations      and Import of Nuclear
                                                                 (ITAR).                  Material and Equipment
                                                                                          (NRC); 10 C.F.R. 810--
                                                                                          Assistance to Foreign
                                                                                          Atomic energy
                                                                                          Activities (DOE).
Control List.........................  Commerce Control List    Munitions List (USML)..  List of Nuclear
                                        (CCL).                                            Facilities and
                                                                                          Equipment; List of
                                                                                          Nuclear Materials
                                                                                          (NRC); Nuclear
                                                                                          Referral List (CCL);
                                                                                          USML; Activities
                                                                                          Requiring Specific
                                                                                          Authorization (DOE).
Relation to Multilateral Controls....  Wassenaar Arrangement    Wassennaar Arrangement   Nuclear Suppliers'
                                        (Dual-Use); Missile      (munitions); MTCR.       Group; International
                                        Technology Control                                Atomic Energy Agency.
                                        Regime (MTCR);
                                        Australia Group (CBW);
                                        Nuclear Suppliers'
                                        Group.
Licensing Policy.....................  Based on item, country,  Most Munitions; License  General/Specific
                                        or both. Anti-           items require            Licenses (NRC);
                                        terrorism controls       licenses; 21             General/Specific
                                        proscribe exports to 5   proscribed countries.    Authorizations (DOE).
                                        countries for nearly
                                        all CCL listings.
Licensing Application Timeline.......  initial referral within  60 days with national    No timeframe for
                                        9 days; agency must      security exceptions;     license applications.
                                        approve/deny within 30   Congressional
                                        days; 90 appeal          notification period
                                        process. (See Appendix   for significant
                                        2).                      military equipment.

[[Page 10441]]

 
Penalties............................  Criminal: $1 million or  Criminal: $1 million/10  Criminal: Individual--
                                        20 years; Civil:         years prison; Civil:     $250,000/12 years to
                                        $250,000/Denial of       $500,000/forfeiture of   life; Firm--$500,000
                                        export privileges.       goods, conveyance;       (For NRC and DOE);
                                        (IEEPA).                 Denial of Export         Civil: $100,000 per
                                                                 Privileges for either.   violation (For NRC).
----------------------------------------------------------------------------------------------------------------

                               Congressional Research Service;

                                   Washington, DC, April 21, 2008.

                               Memorandum

     Re: United Arab Emirates: Political Background and Export 
         Control Issues.
     To: Senate Homeland Security and Government Affairs 
         Committee; Subcommittee on Oversight of Government 
         Management; the Federal Workforce, and the District of 
         Columbia.
     From: Kenneth Katzman; Specialist in Middle Eastern Affairs; 
         Ian F. Fergusson; Specialist in International Trade and 
         Finance Foreign Affairs, Defense, and Trade Division.
       This memorandum responds to your request for background on 
     the United Arab Emirates and concerns about that country's 
     export control law and practices. If you have any requests 
     concerning this material, please contact Kenneth Katzman (7-
     7612) or Ian Fergusson (7-4997).


                   Political and Economic Background

       The UAE is a federation of seven emirates (principalities): 
     Abu Dhabi, the oil-rich capital of the federation; Dubai, its 
     free-trading commercial hub; and the five smaller and less 
     wealthy emirates of Sharjah; Ajman; Fujayrah; Umm al-Qawayn; 
     and Ras al-Khaymah. The UAE federation is led by the ruler of 
     Abu Dhabi, Khalifa bin Zayid al-Nuhayyan, now about 60 years 
     old. The ruler of Dubai traditionally serves concurrently as 
     Vice President and Prime Minister of the UAE; that position 
     has been held by Mohammad bin Rashid Al Maktum, architect of 
     Dubai's modernization drive, since the death of his elder 
     brother Maktum bin Rashid Al Maktum on January 5, 2006.
       In part because of its small size--its population is about 
     4.4 million, of which only about 900,000 are citizens--the 
     UAE is one of the wealthiest of the Gulf states, with a gross 
     domestic product (GDP) per capita of about $55,000 per year 
     in terms of purchasing power parity. Islamist movements in 
     UAE, including those linked to the Muslim Brotherhood, are 
     generally non-violent and perform social and relief work. 
     However, the UAE is surrounded by several powers that dwarf 
     it in size and strategic capabilities, including Iran, Iraq, 
     and Saudi Arabia, which has a close relationship with the UAE 
     but views itself as the leader of the Gulf monarchies.
       The UAE has long lagged behind the other Persian Gulf 
     states in political reform, but the federation, and several 
     individual emirates, have begun to move forward. The most 
     significant reform, to date, took place in December 2006, 
     when limited elections were held for half of the 40-seat 
     Federal National Council (FNC); the other 20 seats continue 
     to be appointed. Previously, all 40 members of the FNC were 
     appointed by all seven emirates, weighted in favor of Abu 
     Dhabi and Dubai (eight seats each). UAE citizens are able to 
     express their concerns directly to the leadership through 
     traditional consultative mechanisms, such as the open majlis 
     (council) held by many UAE leaders.
       The UAE's social problems are likely a result of its open 
     economy, particularly in Dubai. The Trafficking in Persons 
     report for 2007 again placed the UAE on ``Tier 2/Watch List'' 
     (up from Tier 3 in 2005) because it does not comply with the 
     minimum standards for the elimination of trafficking but is 
     making significant efforts to do so. The UAE is considered a 
     ``destination country'' for women trafficked from Asia and 
     the former Soviet Union.
       Defense Relations With the United States and Concerns About 
     Iran. Following the 1991 Gulf war to oust Iraqi forces from 
     Kuwait, the UAE, whose armed forces number about 61,000, 
     determined that it wanted a closer relationship with the 
     United States, in part to deter and to counter Iranian naval 
     power. UAE fears escalated in April 1992, when Iran asserted 
     complete control of the largely uninhabited Persian Gulf 
     island of Abu Musa, which it and the UAE shared under a 1971 
     bilateral agreement. (In 1971, Iran, then ruled by the U.S.-
     backed Shah, seized two other islands, Greater and Lesser 
     Tunb, from the emirate of Ras al-Khaymah, as well as part of 
     Abu Musa from the emirate of Sharjah.) The UAE wants to refer 
     the dispute to the International Court of Justice (ICJ), but 
     Iran insists on resolving the issue bilaterally. The United 
     States is concerned about Iran's military control over the 
     islands and supports UAE proposals, but the United States 
     takes no position on sovereignty of the islands. The UAE, 
     particularly Abu Dhabi, has long feared that the large 
     Iranian-origin community in Dubai emirate (est. 400,000 
     persons) could pose a ``fifth column'' threat to UAE 
     stability. Illustrating the UAE's attempts to avoid 
     antagonizing Iran, in May 2007, Iranian President Mahmoud 
     Ahmadinejad was permitted to hold a rally for Iranian 
     expatriates in Dubai when he made the first high level visit 
     to UAE since UAE independence in 1971.
       The framework for U.S.-UAE defense cooperation is a July 
     25, 1994, bilateral defense pact, the text of which is 
     classified, including a ``status of forces agreement'' 
     (SOFA). Under the pact, during the years of U.S. 
     ``containment'' of Iraq (1991-2003), the UAE allowed U.S. 
     equipment pre-positioning and U.S. warship visits at its 
     large Jebel Ali port, capable of handling aircraft carriers, 
     and it permitted the upgrading of airfields in the UAE that 
     were used for U.S. combat support flights, during Operation 
     Iraqi Freedom (OIF). About 1,800 U.S. forces, mostly Air 
     Force, are in UAE; they use Al Dhafra air base (mostly KC-10 
     refueling) and naval facilities at Fujairah to support U.S. 
     operations in Iraq and Afghanistan.
       The UAE, a member of the World Trade Organization (WTO), 
     has developed a free market economy. On November 15, 2004, 
     the Administration notified Congress it had begun negotiating 
     a free trade agreement (FTA) with the UAE. Several rounds of 
     talks were held prior to the June 2007 expiration of 
     Administration ``trade promotion authority,'' but progress 
     had been halting, mainly because UAE may feel it does not 
     need the FTA enough to warrant making major labor and other 
     reforms. Despite diversification, oil exports still account 
     for one-third of the UAE's federal budget. Abu Dhabi has 80% 
     of the federation's proven oil reserves of about 100 billion 
     barrels, enough for over 100 years of exports at the current 
     production rate of 2.2 million barrels per day (mbd). Of that 
     amount, about 2.1 mbd are exported, but negligible amounts go 
     to the United States. The UAE does not have ample supplies of 
     natural gas, and it has entered into a deal with neighboring 
     gas exporter Qatar to construct pipeline that will bring 
     Qatari gas to UAE (Dolphin project). UAE is also taking a 
     leading role among the Gulf states in pressing consideration 
     of alternative energies, including nuclear energy, to 
     maintain Gulf energy dominance.


                         Export Control Issues

       Cooperation Against Terrorism. The relatively open society 
     of the UAE--along with UAE policy to engage rather than 
     confront its powerful neighbors--has also caused differences 
     with the United States on the presence of terrorists and 
     their financial networks. However, the UAE has been 
     consistently credited by U.S. officials with attempting to 
     rectify problems identified by the United States.
       The UAE was one of only three countries (Pakistan and Saudi 
     Arabia were the others) to have recognized the Taliban during 
     1996-2001 as the government of Afghanistan. During Taliban 
     rule, the UAE allowed Ariana Afghan airlines to operate 
     direct service, and Al Qaeda activists reportedly spent time 
     there. Two of the September 11 hijackers were UAE nationals, 
     and they reportedly used UAE-based financial networks in the 
     plot. Since then, the UAE has been credited in U.S. reports 
     (State Department ``Country Reports on Terrorism: 2006, 
     released April 30, 2007'') and statements with: assisting in 
     the 2002 arrest of senior Al Qaeda operative in the Gulf, Abd 
     al-Rahim al-Nashiri; denouncing terror attacks; improving 
     border security; prescribing guidance for Friday prayer 
     leaders; investigating suspect financial transactions; and 
     strengthening its bureaucracy and legal framework to combat 
     terrorism. In December 2004, the United States and Dubai 
     signed a Container Security Initiative Statement of 
     Principles, aimed at screening U.S.-bound containerized cargo 
     transiting Dubai ports. Under the agreement, U.S. Customs 
     officers are co-located with the Dubai Customs Intelligence 
     Unit at Port Rashid in Dubai. On a ``spot check'' basis, 
     containers are screened at that and other UAE ports for 
     weaponry, explosives, and other illicit cargo.
       The UAE has long been under scrutiny as a transhipment 
     point for exports to Iran and other proliferators. In 
     connection with revelations of illicit sales of nuclear 
     technology to Iran, Libya, and North Korea by Pakistan's 
     nuclear scientist A.Q. Khan, Dubai was named as a key 
     transfer point for Khan's shipments of nuclear components. 
     Two Dubai-based companies were apparently involved in trans-
     shipping components: SMB Computers and Gulf Technical 
     Industries. On April 7, 2004, the Administration sanctioned a 
     UAE firm, Elmstone Service and Trading (FZE), for allegedly 
     selling weapons of mass destruction- related technology to 
     Iran, under the Iran-Syria Non-Proliferation Act (P.L. 106-
     178). More recently, in June 2006, the Bureau of Industry and 
     Security (BIS) released a general order imposing a license 
     requirement on Mayrow General Trading Company and related 
     enterprises in the UAE.

[[Page 10442]]

     This was done after Mayrow was implicated in the transhipment 
     of electronic components and devices capable of being used to 
     construct improvised explosive devices (IED) used in Iraq and 
     Afghanistan.
       Current Controls. The UAE is not subject to any blanket 
     prohibitions regarding dual- use Commerce exports. In 
     general, the UAE faces many of the same license requirements 
     as other non-NATO countries. In the Export Administration 
     Regulations (15 CFR 730 et seq.), the UAE is designated on 
     Country Group D and thus is not eligible for certain license 
     exceptions for items controlled for chemical biological and 
     missile technology reasons. Reexports of U.S. origin goods 
     from one foreign country to another subject to EAR are also 
     controlled, and may require the reexporter regardless to 
     nationality to obtain a license for reexport from BIS.
       The Treasury Department's Office of Foreign Assets Control 
     maintains a comprehensive embargo on the export, re-export, 
     sale or supply of any good, service or technology to Iran by 
     persons of U.S. origin, including to persons in third 
     countries with the knowledge that such goods are intended 
     specifically for the supply, transhipment or re-exportation 
     to Iran (Iranian Transaction Regulations, 31 CFR 560.204). 
     Re-exportation of goods, technology and services by non-U.S. 
     persons are also prohibited if undertaken with the knowledge 
     or reason to know that the re-exportation is intended 
     specifically for Iran. (31 CFR 560.205). In addition, BIS 
     also maintains controls on exports and reexports for items on 
     the Commerce Control List (EAR, 15 CFR 746.7).
       The lack of an effective export control system in the UAE 
     and the use of the emirates' ports as transhipment centers 
     has been a concern to U.S. policymakers. To that end, BIS 
     released an advanced notice of proposed rule-making on 
     February 26, 2007 that would have created a new control 
     designation: ``Country Group C: Destinations of Diversion 
     Control.'' This designation would have established license 
     requirements on exports and re-exports to countries that 
     represent a diversion or transhipment risk for goods subject 
     to the Export Administration Regulations. According to BIS, 
     the Country C designation was designed ``to strengthen the 
     trade compliance and export control system of countries that 
     are transhipment hubs.'' Designation on the Country Group C 
     list could lead to tightened licensing requirements for 
     designees. Although no countries were mentioned in the 
     notice, it was widely considered to be directed at the United 
     Arab Emirates.
       Perhaps as a response to the possibility of becoming a 
     `Country C' designee, the UAE Federal Council passed the 
     emirate's first ever export control statute in March 2007. 
     That law, also created a control body known as the National 
     Commission for Commodities Subject to Import, Export, and Re-
     export Controls and that law was signed on August 31, 2007 by 
     Emirates President H.H. Sheikh Khalifa bin Zayed Al Nahyan. 
     Reportedly, the law's structure and control lists were 
     modeled after the export control regime of Singapore, another 
     prominent transhipment hub. It remains unclear, however, the 
     extent to which the law is being enforced or whether 
     resources are being devoted to preventing the diversion or 
     illegal transhipment of controlled U.S. goods and 
     technologies.
       The United States has one export control officer (ECO) on 
     the ground in the UAE to investigate violations of U.S. dual-
     use export control laws. This officer may be augmented by 
     U.S. Foreign Commercial Officers in conducting end-use check 
     and post-shipment verifications. A recent GAO report 
     mentioned a ``high-rate of unfavorable end-use checks for 
     U.S. items exported to the UAE,'' but the report did not 
     elaborate further.
       The United States also has engaged in technical cooperation 
     to assist the UAE in developing its export control regime. 
     Officials from BIS and other agencies reportedly traveled to 
     the UAE in June 2007 to discuss the proposed statute. In 
     addition, the Department of State has also provided training 
     through its Export Control and RelatedBorder Security (EXBS) 
     program. This program provides participating countries with 
     licensing and legal regulatory workshops, detection 
     equipment, on-site program and training advisers, and 
     automated licensing programs. Since FY2001, UAE has received 
     between $172-$350 thousand annually in this assistance. For 
     FY2009, State has requested $200 thousand for the UAE under 
     this program.

                                             RECENT U.S. AID TO UAE
----------------------------------------------------------------------------------------------------------------
                                         FY2007 and FY2006                                 FY2008       FY2009
                                             (Combined)                 FY2007             (est.)       (req)
----------------------------------------------------------------------------------------------------------------
NADR (Non-Proliferation, Anti-        $1.094 million.........  $1.581 million.........     $300,000     $925,000
 Terrorism, De-Mining, and Related)--
 Anti-Terrorism Programs (ATA).
NADR--Counter-Terrorism Financing...  $300,000 (FY2006 only).  $580,000...............  ...........     $725,000
NADR--Export Control and Related      $250,000...............  $172,000...............     $300,000     $200,000
 Border Security Assistance.
International Military Education and  .......................  .......................      $14,000      $15,000
 Training (IMET).
International Narcotics and Law       .......................  .......................     $300,000  ...........
 Enforcement (INCLE).
----------------------------------------------------------------------------------------------------------------
Source: Department of State, FY2009 Budget Justification.




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