[Senate Report 106-180]
[From the U.S. Government Publishing Office]



                                                       Calendar No. 311
106th Congress                                                   Report
                                 SENATE
 1st Session                                                    106-180
_______________________________________________________________________



                       THE EXPORT ADMINISTRATION


                              ACT OF 1999

                               __________

                              R E P O R T

                                 of the

                     COMMITTEE ON BANKING, HOUSING,

                           AND URBAN AFFAIRS

                          UNITED STATES SENATE

                              to accompany

                                S. 1712

                             together with

                            ADDITIONAL VIEWS




                October 8, 1999.--Ordered to be printed

                               __________

                    U.S. GOVERNMENT PRINTING OFFICE
79-010                     WASHINGTON : 1999


            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                      PHIL GRAMM, Texas, Chairman
RICHARD C. SHELBY, Alabama           PAUL S. SARBANES, Maryland
CONNIE MACK, Florida                 CHRISTOPHER J. DODD, Connecticut
ROBERT F. BENNETT, Utah              JOHN F. KERRY, Massachusetts
ROD GRAMS, Minnesota                 RICHARD H. BRYAN, Nevada
WAYNE ALLARD, Colorado               TIM JOHNSON, South Dakota
MICHAEL B. ENZI, Wyoming             JACK REED, Rhode Island
CHUCK HAGEL, Nebraska                CHARLES E. SCHUMER, New York
RICK SANTORUM, Pennsylvania          EVAN BAYH, Indiana
JIM BUNNING, Kentucky                JOHN EDWARDS, North Carolina
MIKE CRAPO, Idaho
                   Wayne A. Abernathy, Staff Director
     Steven B. Harris, Democratic Staff Director and Chief Counsel
                        James J. Jochum, Counsel
               Robert P. O'Quinn, International Economist
   Katherine McGuire, Staff Director, International Trade and Finance
                    Joel Oswald, Professional Staff
                  Douglas Eliot, Congressional Fellow
             Martin J. Gruenberg, Democratic Senior Counsel
         Michael Beresik, Democratic Professional Staff Member
              Paul Nash, Democratic Legislative Assistant
                            C O N T E N T S

                              ----------                              
                                                                   Page
Introduction.....................................................     1
Purpose and Need for Legislation.................................     1
History of the Legislation.......................................     2
Background and Key Provisions....................................     3
Purpose and Scope of the Legislation.............................     7
    Title I. General Authority...................................     7
    Title II. National Security Export Controls..................     8
    Title III. Foreign Policy Export Controls....................    12
    Title IV. Exemption for Agricultural Commodities, Medicine, 
      and Medical Supplies.......................................    13
    Title V. Procedures for Export Licenses and Interagency 
      Dispute Resolution.........................................    13
    Title VI. International Arrangements: Foreign Boycotts; 
      Sanctions; and Enforcement.................................    15
    Title VII. Miscellaneous Provisions..........................    18
    Title VIII. Miscellaneous Provisions.........................    18
Section-by-Section Analysis of S. 1712. ``The Export 
  Administration Act of 1999''...................................    19
Regulatory Impact Statement......................................    27
Cost of Legislation..............................................    28
Additional views of Senator Mack.................................    29

                                                       Calendar No. 311
106th Congress                                                   Report
                                 SENATE
 1st Session                                                    106-180

======================================================================



 
                 THE EXPORT ADMINISTRATION ACT OF 1999

                                _______
                                

                October 8, 1999.--Ordered to be printed

                                _______


 Mr. Gramm, from the Committee on Banking, Housing, and Urban Affairs, 
                        submitted the following

                              R E P O R T

                             together with

                            ADDITIONAL VIEWS

                         [To accompany S. 1712]

    The Committee on Banking, Housing, and Urban Affairs 
reports favorably an original bill entitled the ``Export 
Administration Act of 1999,'' a bill to reauthorize and update 
the lapsed Export Administration Act of 1979, and recommends 
that the bill, with an amendment, do pass.

                              INTRODUCTION

    On September 23, 1999, the Senate Committee on Banking, 
Housing, and Urban Affairs met in legislative session and 
marked up and ordered to be reported an original bill to 
reauthorize the Export Administration Act of 1979, and for 
other purposes, with a recommendation that the bill do pass.

                    PURPOSE AND NEED FOR LEGISLATION

    This Act reauthorizes and reforms the expired Export 
Administration Act of 1979 that authorized the President to 
control the export of dual-use items for national security, 
foreign policy, and short supply purposes. This Act recognizes 
and seeks to balance three important United States policy 
interests. First, the United States has an economic interest in 
promoting exports. Second, the United States has a national 
security interest in controlling the export of dual-use goods, 
services, and technologies (1) to limit the military potential 
of countries that threaten the United States or its allies, (2) 
to impede the proliferation of weapons of mass destruction and 
the means to delivery them, and (3) to deter international 
terrorism. Third, the United States has a foreign policy 
interest in promoting international peace, stability, and 
respect for fundamental human rights through economic and 
diplomatic engagement and the selective application of economic 
sanctions including foreign policy export controls.
    Since the Export Administration Act of 1979 expired on 
August 20, 1994, the President has continued export controls by 
issuing Executive Order 12924 pursuant to his authority under 
the International Emergency Economic Powers Act (IEEPA). IEEPA 
was not intended to allow the President to maintain export 
controls indefinitely in the absence of congressional 
authorization. Without reauthorization, the current export 
control regime may be vulnerable to a judicial challenge. This 
Act corrects this legally unsatisfactory situation by 
reauthorizing national security and foreign policy export 
controls. However, this Act does not authorize the President to 
impose short supply export controls.

                       HISTORY OF THE LEGISLATION

    In order to prepare an original bill for consideration, the 
Committee and its Subcommittee on International Trade and 
Finance, held seven hearings.
    At the first hearing on January 20, 1999, the Subcommittee 
on International Trade and Finance heard testimony from Hon. 
William Reinsch, Under Secretary of Export Administration of 
the Department of Commerce, on the reauthorization of the EAA.
    At the second hearing on March 16, 1999, the Subcommittee 
heard testimony focusing on multilateral control regimes from 
Mr. John Barker, Deputy Assistant Secretary for Export Controls 
of the Department of State; Hon. R. Roger Majak, Assistant 
Secretary for Export Administration of the Department of 
Commerce; Ms. Patricia Dedik, Nuclear Transfer and Suppliers 
Policy Division, Director of the Department of Energy; Mr. Dan 
Hoydysh on behalf of the Computer Coalition for Responsible 
Exports; Mr. Paul Freedenberg on behalf of the Association for 
Manufacturing Technology; Mr. John Douglass, President of the 
Aerospace Industries Association; and Dr. Stephen Bryen, former 
Deputy Under Secretary of Defense for Trade Security Policy.
    At the third hearing on April 14, 1999, the Subcommittee 
heard testimony relating to the export control process, once 
again from Hon. R. Roger Majak, accompanied by Ms. Carol 
Kalinoski, Chairwoman of the Department of Commerce Operating 
Committee; Mr. Dave Tarbell, Director for Technology Security 
at the Defense Threat Reduction Agency for the Department of 
Defense; Mr. James W. Jarrett, President, Intel China; Mr. 
Larry E. Christensen, Vice President, International Trade 
Content, Vastera, Inc; and Dr. Gary Milhollin, Director of the 
Wisconsin Project on Nuclear Arms Control.
    At the fourth hearing on June 10, 1999, the Committee heard 
testimony relating to their Select Committee Report from 
Representative Christopher Cox, Chairman of the Select 
Committee on U.S. National Security and Military/Commercial 
Concerns with the Peoples Republic of China (the ``Cox 
Commission''); and from Representative Norman D. Dicks, Ranking 
Member of the Select Committee.
    At the fifth hearing on June 17, 1999, the Committee heard 
testimony on the EAA relating to emerging technologies from Mr. 
Frank Carlucci, Chairman, Nortel Networks; Mr. Tom Arnold, 
Chief Technology Officer of Cybersource, Inc; Mr. Michael 
Maibach, Vice President, Intel Corp; Mr. Eric Hirschhorn, 
Executive Secretary for the Industry Coalition on Technology 
Transfer; and Mr. Rhett Dawson, President, Information 
Technology Industry Council.
    At the sixth hearing on June 23, 1999, the Committee heard 
comment from the Executive branch on the first discussion draft 
of the bill that was released on June 17, 1999. Testimony was 
received from Hon. William Reinsch, Under Secretary for Export 
Administration; Hon. John Hamre, Deputy Secretary of Defense; 
Hon. James Schroeder, Deputy Under Secretary of Agriculture for 
Farm and Foreign Agriculture Services; Hon. Rose Gottemoeller, 
Assistant Secretary of Energy for Nonproliferation and National 
Security; and Mr. John Barker, Deputy Assistant Secretary of 
State for Nonproliferation Controls.
    At the seventh and final hearing on June 24, 1999, the 
Committee heard private sector views on the first discussion 
draft. Testimony was heard from Mr. John Douglass, President, 
Aerospace Industries Association; Mr. Kyle Seymour, President, 
Cincinnati Machine Co; Mr. Andrew Whisenhunt, President, 
Arkansas Farm Bureau; Ms. Karen Murphy, Director of Global 
Customs and Export Compliance, Applied Materials Corp; Dr. 
Richard Cupitt, Associate Director, Center for International 
Trade and Security, University of Georgia; Dr. Stephen Bryen, 
former Deputy Under Secretary of Defense for Trade Security 
Policy, and Mr. Craig Elwell of the Congressional Research 
Service.
    In addition to the seven hearings, the Committee held 
frequent meetings with all interested parties and received 
written comments from many others. Efforts were made to ensure 
all interested parties would be heard. Additional comments, 
suggestions, and assistance in considering and evaluating the 
legislation were received from the Departments of Commerce, 
Defense, State, Justice, Energy, and Agriculture, as well as 
the National Security Agency and National Security Counsel.
    The Committee released two staff discussion drafts of the 
bill, the first on June 17, 1999 and the second on August 9, 
1999. The Committee released an original committee print on 
September 20, 1999.
    The Committee then voted 20-0 to report the bill, with one 
amendment, to the Senate for consideration.

                     BACKGROUND AND KEY PROVISIONS

    The United States faces a different world since the last 
major revision of the Export Administration Act in 1979. This 
Act has been updated to reflect the changes since the end of 
the Cold War and the emergence of new threats, as well as the 
expansion of the global economy and spread of technology. This 
Act seeks to maintain a balance between national security 
interests and commercial interests.
    National security export controls under the 1979 Act sought 
to prevent exports of dual-use goods, services, and 
technologies to the Soviet bloc from the United States or its 
allies through the Coordinating Committee on Multilateral 
Export Controls (CoCom). In the intervening years, the Soviet 
Union dissolved and the Warsaw Pact disbanded. In 1994, the 
United States and its allies dissolved CoCom, under which the 
United States or any other country could exercise a unilateral 
veto over dual-use exports. A less stringent Wassenaar 
Arrangement, which only requires post-export notification of 
sales of controlled items by member countries, was subsequently 
implemented in 1996. Although new security threats have 
emerged, the legal structure for U.S. national security export 
controls under the 1979 Act continues to focus on the CoCom and 
Soviet bloc. This Act seeks to update national security export 
controls to reflect the current world situation.
    In its effort to improve the multilateral regimes in which 
we participate, the U.S. must negotiate from a leadership 
position, an aspect of which is a firm statutory foundation for 
export control policy. During testimony on June 24, 1999, Dr. 
Richard T. Cupitt of the Center for International Trade and 
Security pointed out, ``The inability of the U.S. government to 
craft a firm legislative foundation for its own controls on the 
export of dual-use goods, technologies, and services over the 
last decade, however, has compromised U.S. leadership 
initiatives.'' 1
---------------------------------------------------------------------------
    \1\ Hearing on the reauthorization of the Export Administration Act 
before the Senate Committee on Banking, Housing, and Urban Affairs, 
June 24, 1999.
---------------------------------------------------------------------------
    Not only have the threats to national security changed in 
the last two decades, but the United States' economy is far 
more dependent on international trade and investment today than 
in 1979. The United States' trade with the rest of the world 
has climbed from $481.4 billion, or 18.8 percent of gross 
domestic product (GDP), in 1979 to $2,069.2 billion, or 24.3 
percent of GDP, in 1998.

Risk management

    The Act focuses national security export controls on those 
items and destinations which the U.S. determines as the 
greatest risk to U.S. national security. The risk management 
processes established by the Act include conducting risk 
analysis for items proposed for control and establishing a 
country tier system based on similar analysis. The country tier 
system seeks to characterize items and countries according to 
their threat to national security.

Foreign availability

    Trade and investment liberalization under the North 
American Free Trade Agreement, the Uruguay Round Agreements and 
other international treaties have fundamentally changed 
production locations and processes. Fewer goods, services, and 
technologies originate entirely within the United States. 
Today, many dual-use goods, services, and technologies can be 
obtained through firms outside of the United States. Firms in 
newly industrialized countries that did not participate in 
CoCom now supply many dual-use goods, services, and technology. 
Moreover, national discretion in application of national 
security export controls among the Wassenaar members allows 
countries to undercut the effectiveness of such export 
controls. Both of these changes can place American firms at 
unfair competitive disadvantage with their foreign rivals. The 
1979 Act does not address the issue of foreign availability in 
a manner relevant to the world today. It assumes the United 
States can effectively control the export of dual-use goods, 
services, or technologies either because the United States is 
the sole supplier, or all suppliers are in CoCom countries. 
This Act makes changes that will strengthen the foreign 
availability exemption from national security export controls

Mass market

    The nature of dual-use technology has also changed since 
1979, primarily because of the computer revolution. In 1979, 
many dual-use goods were produced in small numbers. Today, many 
mass market goods such as personal computers have dual-use 
applications. Even though such mass market goods may have 
military applications, they are produced in the millions and 
sold through a variety of retail outlets. Recognizing these 
technological changes, this Act creates a new mass market 
exemption from national security controls.

Foreign policy disciplines

    This Act institutes new disciplines on foreign policy 
export controls to ensure such controls maximize the general 
welfare of the United States. The Act does not forbid all 
foreign policy export controls, but places certain limitations 
on the use of such controls to increase their effectiveness.

Agriculture, medicine and medical supplies exemption

    Trade prohibitions, through agricultural economic sanction 
policy, hurt United States family farmers and ranchers, 
undermine our reputation as a reliable supplier, and do little 
to alter the behavior of the countries targeted by sanctions. 
This Act eliminates export controls on agricultural 
commodities, medicine, and medical supplies except for a 
limited number of such goods subject to national security 
export controls (e.g., for biological or chemical weapons 
purposes) and for exports to countries subject to an embargo 
under the Trading with the Enemy Act (currently only North 
Korea and Cuba).

Enhanced enforcement

    Enhanced enforcement was a central theme of the Cox 
Committee 2 recommendations and is a key aspect of 
this Act. It includes a requirement for licensing officials to 
notify enforcement officers regarding those license approvals 
that warrant additional scrutiny. It increases penalties and 
strengthens the post shipment verification provisions. Finally, 
the Act includes several new mechanisms designed to enhance 
enforcement. The ``Patriot'' provision allows informants to 
report violations and receive a reward in those cases that 
result in convictions. Funding for a program to educate freight 
forwarders, among some of the most important players in the 
export process, is authorized to increase the public awareness 
of the requirements of the export control law.
---------------------------------------------------------------------------
    \2\ Report of the Select Committee on U.S. National Security and 
Military/Commercial Concerns with the People's Republic of China, May 
25, 1999.
---------------------------------------------------------------------------

Strengthening multilateral regimes

    Since the U.S. is sometimes not the sole source for certain 
technologies, the need for multilateral agreement among 
supplier nations is critical to the success of export control 
mechanisms. The U.S. should take steps to improve the 
effectiveness and transparency of the controls, including 
encouraging full membership, working toward a common list of 
items and countries of concern, harmonization of license 
procedures, establishment of a ``no undercut'' policy, and 
working toward a common standard in enforcement. Such features 
will ensure more predictable competitive opportunities for U.S. 
exporters. This Act emphasizes the importance of these efforts.

Sanctions

    The Act continues to authorize sanctions against those who 
endanger U.S. security interests. For those entities within 
export control regime member countries who violate the 
provisions of the regime, the Act provides that the U.S. may 
impose certain trade sanctions on the violators, unless their 
own country's government takes adequate action regarding the 
violations. For entities that contribute to the proliferation 
of missiles and missile delivery systems, or chemical and 
biological weapons, the bill mandates a U.S. sanction in 
response.

The Cox Committee and Deutch Commission

    About the time the Committee began its research for this 
Act, the Cox Committee was finishing its work. The Committee 
released a classified report documenting its findings in 
January, 1999, and an unclassified version in April, 1999. The 
bipartisan Committee's report included recommendations to 
improve current export control practices. All but two of the 
recommendations are included in this bill. Of the two which are 
not included in this bill, one recommended unlimited amounts of 
time to review ``critical'' case applications. This bill limits 
the review period of all cases, but allows an agency to request 
additional information at any time. It also allows an exporter 
to authorize additional time for review in order to avoid a 
potential license denial. The other recommendation was 
partially included. The Cox Committee recommended that post-
shipment verifications (PSVs) be conducted without prior 
notice. This bill significantly strengthens the PSV provisions, 
but the Committee believes that prior notice for PSVs is 
necessary due to national sovereignty concerns.
    The Deutch Commission 3 also concluded its work 
in July, 1999, and its report included four primary 
recommendations on export controls. Three of these 
recommendations have been included in this bill. The fourth 
recommendation suggested a study to consider harmonizing 
controls under the Export Administration Act and Arms Export 
Control Act. This goal is consistent with the intent of the 
Committee.
---------------------------------------------------------------------------
    \3\ Report from the Commission to Assess the Organization of the 
Federal Government to Combat the Proliferation of Weapons of Mass 
Destruction, July 14, 1999.
---------------------------------------------------------------------------

                  PURPOSE AND SCOPE OF THE LEGISLATION

Title I--General authority

    Title I provides general authorization for the conduct of 
United States export control policy. As has been the practice 
under previous versions of the Export Administration Act, the 
power to establish and conduct export control policy, under the 
statutory direction and restrictions imposed by the Act, is 
vested in the President.
    The President may delegate the authority granted under the 
Act, subject to the provisions of the Act, to Federal 
departments, agencies, and officials he considers appropriate. 
However, the President may only delegate this authority to 
officials of departments or agencies, the heads of which are 
appointed by the President and confirmed by the Senate. The 
Committee notes that this is intended to include officials 
serving in such a post under a recess appointment by the 
President. The President also may not delegate his power and 
authority to overrule or modify decisions made under the Act by 
the Secretaries of Commerce, State, or Defense.
    As a basis for the conduct of export control policy, the 
Title directs the Secretary of Commerce to establish and 
maintain a Commerce Control List (the ``Control List''). This 
is a list of items that are subject to export controls. The 
Secretary may require a license, other authorization, or other 
requirement for the export of any item on the Control List. The 
bill establishes several forms of licensing and other 
authorization. Individual licenses may be required for specific 
exports. Multiple licenses may be required for multiple exports 
of an item, instead of an individual license for each. 
Notification to the Secretary of the intent to export an item 
may be required in lieu of a license. The Secretary may also 
grant a license exception, which is the authority to export an 
item on the Control List without license or notification.
    The Committee intends to ensure that exporters will be able 
to provide replacement parts for their exports unless the 
Secretary determines that there is a reason not to do so. To 
that end, the Title provides that for after-market service or 
replacement parts provided on a one-for-one basis for a 
lawfully exported item, a license or other authorization will 
not be required. Exceptions to this provision are authorized 
either when the Secretary determines that a license or other 
authorization is necessary, or when the after-market or 
replacement part or service would enhance the capabilities of 
an item that gave rise to control of that item in the first place.
    The Committee also intends that exporters be able to export 
technologies incidental to an exported item, so long as they 
relate to the installation and operation of the item, and do 
not enhance any capability that led to the item's inclusion on 
the Control List. The Act therefore provides that a license for 
an export of an item includes the export of incidental 
technology, but only so long as that technology does not exceed 
the minimum needed to install, maintain, repair, inspect, 
operate or use the item.
    In addition, the Secretary will consult with a broad array 
of interested parties, particularly when it comes to decisions 
on the mass market or foreign availability status of items on 
the Control List. The Act also authorizes the Secretary to set 
up Export Control Advisory Committees. These panels are to be 
comprised of experts from industry and government. These panels 
may be established on the Secretary's own initiative or at the 
request of industry representatives. The Department is also to 
inform the public about changes in export policy, procedures, 
and regulations.
    The Act provides that the Secretary may create regulations 
to implement the Act's provisions regarding the Control List, 
export licenses and other authorizations and requirements, and 
any other provisions of the Act, and states specifically that 
no fees may be charged in connection with an export license 
application.
    Finally, the Act reaffirms that U.S. companies and 
individuals have a right to export.

Title II--National security export controls: Subtitle A

    Title II authorizes the President to impose export controls 
for national security purposes. Subtitle A of this title 
details the authorities and procedures necessary to implement 
national security export controls. The authority is vested in 
the President and is exercised by the Secretary of Commerce, in 
consultation with the Secretary of Defense, the intelligence 
agencies, and other appropriate departments and agencies. This 
grant of authority is identical to the Export Administration 
Act of 1979, with one exception. The Committee believes that 
the U.S. intelligence community should play a greater role in 
developing and implementing export control policy. Therefore, a 
specific reference is made to intelligence agencies in Section 
201.
    The 1979 Act contained a series of policy declarations to 
guide the President in imposing export controls for national 
security reasons. This Act, instead, enumerates the purposes 
for imposing national security export controls in Section 201. 
The Committee retains the purpose set forth in the 1979 Act: To 
restrict the export of items that would contribute to the 
military potential of countries so as to prove detrimental to 
the national security of the United States. The purposes are 
also expanded in two important areas. First, the Committee 
authorizes national security export controls to stem the 
proliferation of weapons of mass destruction and the means to 
deliver them. Second, national security export controls are 
authorized to deter acts of international terrorism.
    Export controls are authorized based on the end use or end 
user of an item, when an item could materially contribute to 
the proliferation of weapons of mass destruction or the means 
to deliver them. The Committee intends this provision to serve 
as a means to control items that may not be listed on the 
Commerce Control List, but should be controlled due to the 
intended recipient or anticipated use of the item.
    Section 202 authorizes the Secretary of Commerce to 
establish and maintain a National Security Control List. Items 
to be controlled are identified and placed on the list with the 
concurrence of the Secretary of Defense, and in consultation 
with other appropriate agencies. This process is essentially 
identical to that contained in the 1979 Act. Since the 
Committee expects continuity in the process of placing items on 
the National Security Control List, it is intended that the 
agencies continue to utilize the National Security Control List 
in existence at the date of enactment of this Act, until it can 
be modified in accordance with this section. The Committee also 
provides guidance, in the form of risk factors, in determining 
which items are to be placed on the control list.
    The Committee seeks to increase the transparency and 
predictability of the export control system by creating a 
country tiering mechanism in Section 203. This section requires 
the President to establish a tiering system consisting of five 
tiers. Each country will be assigned to a tier for each 
controlled item, or group of controlled items. Countries that 
represent the lowest risk of diversion or misuse of an item 
will be assigned to Tier 1. Countries representing the highest 
risk will be assigned to Tier 5. Within this framework, the 
Committee intends that the President have a great deal of 
flexibility in assigning items to the tiers. Items may be 
assigned individually, within groups, or in any other way the 
President deems appropriate.
    The tiering system will provide license applicants with 
greater knowledge of the likelihood of their license 
applications being approved. Furthermore, the Committee expects 
that the tiering system will provide an incentive for countries 
to reduce the incidents of misuse or diversion of controlled 
items in order to be assigned to a lower tier.
    Section 204 attempts to codify current regulatory practice 
by setting out certain limitations on controlling the export of 
items containing controlled parts or components and the 
reexport of foreign-made items incorporating controlled parts 
or components. Controls may not be placed on an item solely 
because the item contains parts or components subject to 
controls, if the parts or components are essential to the 
functioning to the item, are customarily included in the sales 
of the item, and comprise 25 percent or less of the total value 
of the item.
    Section 204(b) provides that no authority or permission may 
be required to reexport to a country (other than one designated 
under section 310) an item produced in a foreign country that 
contains controlled U.S. parts or components, if the parts or 
components comprise 25 percent or less than the total value of 
the item. For reexport to those countries designated under 
Section 310, the value threshold is reduced to 10 percent.
    Section 205 requires the Secretary of Commerce to establish 
a process for interested persons to petition to change the 
status of an item on the Commerce Control List. The Committee 
believes that persons outside of the government may have 
information relevant to whether an item should remain on the 
Control List. This process will ensure such information is 
transmitted to and considered by the Secretary.

Subtitle B: Foreign availability and mass market status

    The Committee has concluded that the effectiveness of U.S. 
export controls is increased if items that are available from 
foreign sources or are available on a mass-market basis are 
exempt from control. Unilateral controls on U.S. exports are 
less likely to achieve their intended results than controls 
imposed on a multilateral basis. Controlling items determined 
to have foreign availability status or mass-market status will 
likely decrease the competitiveness of U.S. exporters. John 
Douglass, President of the Aerospace Industries Association, 
supports the mass market provision:

          Except for very unusual circumstances, mostly related 
        to lethal military equipment, U.S. companies should be 
        allowed to sell products that are, or are expected to 
        be, available from other sources. Shifting the source 
        of supply does not punish the importer; it punishes the 
        exporter.4
---------------------------------------------------------------------------
    \4\ Hearing on the reauthorization of the Export Administration Act 
before the Senate Subcommittee on International Trade and Finance of 
the Senate Banking, Housing, and Urban Affairs Committee, June 24, 
1999.

    The U.S. export control regime should focus on controlling 
those items that pose the greatest risk to national security. 
The Committee believes there is little national security 
benefit derived from controlling U.S. items if substantially 
identical items can be acquired through another source or if 
such items are produced and available for sale in large volume 
to multiple purchasers. Therefore, the U.S. export control 
system must include effective foreign availability and mass-
market mechanisms, whereby those items which have foreign 
availability or mass-market status would be decontrolled (i.e., 
no license would be required for their export). Foreign 
availability and mass-market status would only apply to items 
controlled for national security purposes. Items controlled for 
foreign policy purposes would be exempt from foreign 
availability and mass-market status, in order to allow the U.S. 
to sanction a country or end-user.
    The Act states that an item has foreign availability status 
if it is: (1) available from sources outside the U.S., 
including countries that participate with the U.S. in 
multilateral export controls; (2) at a price that is not 
excessive when compared to the price at which a controlled 
country could acquire such item; and (3) in sufficient quantity 
that renders control ineffective. This foreign availability 
definition modifies that contained in the Export Administration 
Act of 1979 to address problems cited by industry.
    This Act recognizes the necessity of a mass-market 
exemption from export controls. Mass-market items are virtually 
uncontrollable by the nature of their wide distribution 
channels, massive volumes and general purposes, giving such 
items characteristics not unlike those of traditional 
commodities. Jim Jarrett, President of Intel China, summed up 
the reasoning for mass-market exemptions from controls:

          A major step in achieving a refocusing of export 
        controls is the removal of restrictions on mass market 
        products. Mass market products, by their very nature, 
        are not susceptible to effective control and can 
        contribute to strategic military capability in only the 
        most generalized way. They are sold in very high 
        volumes through a multitude of distribution channels 
        and are not uniquely designed for individual 
        applications.5
---------------------------------------------------------------------------
    \5\ Hearing on the reauthorization of the Export Administration Act 
before the Senate Subcommittee on International Trade and Finance of 
the Senate Banking, Housing, and Urban Affairs Committee, April 14, 
1999.

    The Export Administration Act of 1999 considers an item to 
have mass market status if it: (1) is produced and available 
for sale in large volume to multiple potential purchasers; (2) 
is widely distributed through normal commercial channels; (3) 
is conducive to shipping by generally accepted commercial 
means; and (4) may be used for its intended purpose without 
substantial and specialized service.
    In order to keep pace with changing technology and markets, 
the Secretary's determination should take into consideration 
developing technological and market trends. This approach 
should be consistent with past practice in connection with, for 
example, the establishment of new export control thresholds for 
microprocessors and computers. A determination of mass market 
status shall apply to all items that are substantially 
identical or directly competitive. This action is necessary to 
avoid discriminatory treatment and disrupting the competitive 
balance among products or technology.
    While individual or particular items are eligible for mass 
market status, the initial determination should wherever 
possible be made for the generic class or category of items as 
is the current practice with respect to the Commodity Control 
List. Thus, the volume calculations should include production 
or sales of all items that are either substantially identical 
or directly competitive to the item under assessment. These 
generally equivalent items would qualify for mass market status 
even though individually they may not otherwise meet the 
production or sales volumes required for mass market status.
    The Committee concluded that there may be times when an 
item determined to have mass-market or foreign availability 
status should be controlled because of a threat that item may 
pose to the national security of the United States. These 
instances are expected to be relatively rare, however. The bill 
allows the President to ``set-aside'' mass-market and foreign 
availability determinations in certain circumstances. The 
presidential set-aside is to be reviewed every six months, with 
a report sent to Congress for each set-aside. The review and 
reporting requirements are intended to promote accountability, 
discipline and transparency in the decision-making process. The 
set-aside of a foreign availability determination is to expire 
18 months after such determination, unless the President has 
been able to achieve an agreement to eliminate the foreign 
availability of that item. The Committee believes that if the 
President cannot convince other suppliers of that item to 
impose export controls on that item within an 18-month period, 
multilateral controls for that item are not likely to occur. 
The set-aside of a mass-market determination does not 
automatically expire; however, the President must still review 
the set-aside every six months.
    Given the rapid changes in technology and the importance of 
technology to the U.S. economy, the Committee believes a single 
office is necessary to track worldwide technological 
developments in industry sectors critical to the national 
security interests of the U.S. Therefore, the Office of 
Technology Evaluation (OTE) is to be established in the 
Department of Commerce to facilitate technical studies of 
foreign availability and mass-market determinations, as well as 
evaluations of multilateral export control regimes, other 
government export control policies and U.S. industrial sectors 
critical to the U.S. defense industrial base.

Title III--Foreign policy export controls

    Title III authorizes the imposition of export controls for 
foreign policy purposes. Since most foreign policy controls are 
unilateral in nature, and because the Committee believes that 
multilateral controls are preferred to unilateral controls, 
Title III imposes certain disciplines onthe imposition of 
foreign policy controls.
    The disciplines detailed in Title III track those set forth 
in Section 6 of the Export Administration Act of 1979 in most 
respects. However, there is at least one significant 
difference: This Act narrows the scope of purposes for which 
foreign policy controls can be imposed, most notably by moving 
to Title II the authorization to impose export controls to stem 
the proliferation of weapons of mass destruction, chemical and 
biological weapons, and the means to deliver them.
    Title III specifically authorizes export controls to be 
imposed to promote the foreign policy objectives of the United 
States; to promote international peace, stability, and respect 
for fundamental human rights; and to deter and punish acts of 
international terrorism.
    Section 303 provides criteria to guide the President in 
imposing export controls for foreign policy purposes, which 
build on the criteria set forth in Section 6(b) of the 1979 
Act. An export control imposed under this title must have a 
specific objective; have an objective standard for evaluating 
its success; include an assessment by the President that the 
control is likely to achieve its objective and that the 
achievement of the objective outweighs any potential cost to 
other U.S. interests; be targeted narrowly; and seek to 
minimize the impact on humanitarian activities of the United 
States in the country subject to the control.
    In order to impose controls, the President must follow the 
procedures outlined in the title. Both the 1979 Act and Title 
III of this bill require the President to consult with 
Congress, other countries, and industry prior to imposing a 
foreign policy export control. Both Acts also require a report 
to be filed with Congress.
    Title III, however, imposes an additional requirement. 
Section 302 provides that the President must publish notice in 
the Federal Register 45 days prior, and solicit public comment 
at least 30 days, prior to imposition of a control. The 
Committee believes this requirement will increase transparency 
in the process of imposing foreign policy controls and allow 
all interested parties to provide information relating to any 
potential impact the control may have on them. Title III also 
allows the President to defer compliance with this requirement, 
and the report to Congress required under Section 304, if 
deferral is in the national interest and the President 
satisfies these requirements within 60 days after the date the 
control is imposed.
    Title III also addresses existing foreign policy export 
controls. The President is required to review all existing 
controls by February 1, 2002 and every two years thereafter 
(the ``renewal year''). Any control not specifically renewed, 
by report to Congress, will expire on March 31 of the renewal 
year. While the 1979 Act terminated foreign policy controls one 
year after imposition, unless extended by the President, the 
Committee believes the additional requirements imposed on the 
President in Title III justify a two-year review and renewal 
period.
    Finally, Section 301(c) broadens the prohibition on 
controlling exports from a foreign country of an item produced 
in such foreign country, containing parts or components 
produced in the United States. Section 301(d) recodifies, to a 
large extent, Section 6(p) of the 1979 Act relating to contract 
sanctity. Section 309 authorizes the President to impose 
controls on exports in order to comply with international 
obligations, notwithstanding any other provision of the Act, 
which is based on a similar provision in Section 6(i) of the 
1979 Act. Section 310 recodifies Section 6(j) of the 1979 Act 
relating to the designation of countries determined to be 
supporters of international terrorism and the requirement that 
exports to such countries be licensed.

Title IV--Exemptions for agricultural commodities, medicine and medical 
        supplies

    Title IV restricts the use of foreign policy export 
controls on agricultural commodities, medicine, or medical 
supplies. The Committee intends that the terms ``medicine'' and 
``medical supplies'' be interpreted broadly, consistent with 
the humanitarian objectives of this Title. This provision will 
not only benefit the economic position of people in other 
countries, but also the agricultural economy in the United 
States.
    The Committee specifically exempts nations subject to the 
Trading with the Enemy Act and items that are controlled for 
national security purpose from this prohibition of sanctions.

Title V--Procedures for export licenses and interagency dispute 
        resolution

    Transparency and accountability are necessary components of 
the export license process. Government must avoid unreasonable 
processing delays so U.S. exporters are not disadvantaged in 
the global marketplace. Sharing information with those 
departments or agencies which have an export control mandate is 
vital to making well-informed license decisions. Focusing 
attention on those licenses which involve significant 
technologies and end-users of concern will spare exporters 
lengthy and costly delays for exports of less sensitive items.
    In order to ensure that export license decisions are 
consistent with U.S. national security and foreign policy 
goals, the bill establishes a risk management framework. 
Criteria for the evaluation of export license applications 
include risk factors such as the characteristics of the item, 
the threat to national security from misuse, and the risk of 
diversion. Reviewing the end-user and end-use of a proposed 
export is an important part of the analysis and will focus 
attention on those applications which involve specific end-
users or end-uses of concern. Mitigating factors such as 
changing the characteristics of an item, after-market 
monitoring and post- shipment verification are to be considered 
in an effort to assess what combination of circumstances might 
permit the export without impinging upon national security or 
foreign policy objectives.
    The Department of Commerce will have nine days to ensure an 
application for export license is complete and verify that a 
license is required for the item. The application, all 
supporting documents, and Commerce's analysis of the proposed 
export must be referred to the Department of Defense and other 
appropriate departments and agencies (the ``referral 
agencies'') within the nine-day time period. The referral 
agencies will have 25 days to consider the application and 
forward a recommendation to Commerce. If any agency does not 
respond within the 25 days, it is presumed they have no 
objection to the issuance of the license. The time limit for 
interagency review was reduced to 25 days from the 30 days 
allowed in Executive Order 12981 to ensure more timely results 
for exporters.
    Commerce or any other department or agency may request a 
prelicense check in order to verify the identity and 
reliability of the end-user. The prelicense check must be 
initiated within five days of the request for such a check and 
the analysis of the Secretary must be completed within five 
days of completion of the check.
    At the end of 25 days (excluding exceptions from the 
required time periods), Commerce will either issue the license, 
notify the applicant of the intent to deny the license, or 
notify the applicant the application is being referred to the 
interagency dispute resolution process. If an export license 
application is to be denied, Commerce will inform the applicant 
of the determination to deny, the specific basis for the denial 
and what modifications to the proposed export might permit the 
export to be approved. The applicant will have 20 days in which 
to respond to a proposed denial, thus allowing the applicant an 
opportunity to address or correct the reasons for denial. If an 
applicant wishes to withdraw an application at any time, the withdrawal 
must be in writing.
    An effective interagency dispute resolution process will 
ensure that (1) a wide range of facts and opinions are brought 
to bear on each case; (2) the system encourages decision rather 
than indecision; and (3) agencies are allowed to escalate cases 
to the highest levels of government.6
---------------------------------------------------------------------------
    \6\ Hearing on the reauthorization of the Export Administration Act 
before the Subcommittee on International Trade and Finance, of the 
Senate Banking, Housing, and Urban Affairs Committee, April 14, 1999, 
testimony of R. Roger Majak, Assistant Secretary for Export 
Administration, Bureau of Export Administration, U.S. Department of 
Commerce.
---------------------------------------------------------------------------
    If the agencies do not agree on approval or denial of an 
export license application, the application will be referred to 
the initial level of review within the interagency dispute 
resolution process. The Secretary of Commerce will establish an 
interagency committee for this review and will designate the 
chair of the committee. The chair will consider the positions 
of the reviewing agencies and will document the agencies' 
positions in the minutes of the committee. After such 
consideration, the chair will make a decision on the license 
application. Documenting the recommendations of the reviewing 
agencies and the chair's decision permits the agencies to go 
``on the record'' with their votes and also creates 
accountability for the chair's decision. The decision of the 
chair may be appealed by the representative of the dissenting 
agency. Additional levels of review shall provide for decision-
making based on a majority vote.
    The entire interagency process is to be completed or 
referred to the President not later than 90 days after the date 
of initial referral for interagency review, consistent with 
Executive Order 12981. Once a final decision is made under the 
interagency dispute resolution process, Commerce shall issue 
the license or notify the applicant of the intention to deny 
the application.
    An applicant may file a petition with the Secretary 
requesting compliance with the time limits established for 
license processing. In response, the Secretary shall act 
immediately to correct the situation causing the delay and so 
notify the applicant. If, after 20 days, the processing of the 
application is still not in conformance with the time limits 
set forth in this section, the applicant may pursue action in 
U.S. district court to compel compliance with the time limits.
    When the Department of Commerce receives a written request 
for classification of a controlled item, Commerce will notify 
the Department of Defense, and other agencies as appropriate. 
The Committee intends that other agencies have input as to 
which agency has jurisdiction over the item, and whether a 
license is required. Commerce will have 14 days to issue the 
classification. If the Department of Commerce receives a 
written request for information under the Act, Commerce will 
have 30 days in which to respond.

Title VI--International arrangements; foreign boycotts; sanctions; and 
        enforcement

    The United States should continue to exercise its 
leadership in export controls by its participation in 
multilateral export control regimes. An annual report to 
Congress is required wherein the President will evaluate the 
effectiveness of the multilateral export control regimes and 
make an assessment of the steps taken by the U.S. to strengthen 
the regimes.
    With respect to foreign boycotts, the Act generally 
recodifies Section 8 of the expired Export Administration Act 
of 1979. Enforcement of the antiboycott provisions are 
strengthened by making penalties for violations of this section 
the same as for export control violations.
    The success of export control efforts depends upon vigorous 
enforcement of the law. This reauthorization includes several 
new initiatives to strengthen enforcement. Penalties for 
violations of this Act, criminal and civil, are significantly 
enhanced. Continuing the Export Administration Regulations 
under IEEPA severely limits the criminal fines for violations. 
The need for tougher penalties was stressed by a variety of 
witnesses before the Committee:

          For many potential violators, the monetary penalties 
        associated with the old EAA posed no compelling reason 
        for compliance. [S]harply increasing the penalties for 
        violations . . . helps implement the first element of a 
        ``higher fences, fewer goods'' strategy.7

    \7\ Hearing on the reauthorization of the Export Administration Act 
before the Senate Committee on Banking, Housing, and Urban Affairs, 
June 24, 1999, testimony of Dr. Richard T. Cupitt, Associate Director, 
Center for International Trade and Security, University of Georgia.
---------------------------------------------------------------------------
    The Deutch Commission strongly supported enhanced penalties 
as a deterrent to would-be violators, stating that under 
current law, ``[A]n export control violator could view the risk 
and burden of penalty for a violation as low enough to be 
merely a ``cost of doing business,'' to be balanced against the 
revenue received from an illegal transaction.'' 8
---------------------------------------------------------------------------
    \8\ Report from the Commission to Assess the Organization of the 
Federal Government to Combat the Proliferation of Weapons of Mass 
Destruction, July 1999.
---------------------------------------------------------------------------
    Individuals will be subject to a criminal fine of up to 10 
times the value of the exports or $1,000,000, whichever is 
greater; a prison term of up to 10 years; or both. Imprisonment 
may be increased to life imprisonment for multiple violations 
or aggravated circumstances. Persons other than individuals 
(i.e., corporations) shall be fined up to 10 times the value of 
the export or $10,000,000, whichever is greater. In addition to 
or in lieu of criminal penalties, the Secretary of Commerce may 
impose a civil fine of up to $1,000,000 for each violation of 
this act, deny export privileges of the person, or exclude the 
person from practice before the Department of Commerce.
    The Secretary of Commerce may deny for up to 10 years the 
export privileges of any person convicted of a violation of 
U.S. export control laws. In order to increase the 
effectiveness of the overall U.S. export control effort, those 
convicted of other criminal statutes which prohibit trafficking 
in weapons of mass destruction or lesser offenses in connection 
with actions falling under this Act are also subject to denial 
of export privileges. Those convicted of violations of this Act 
will find the property they exported and the fruits and 
instrumentalities of their crime subject to forfeiture.
    The statute of limitations for violations of this Act is 
established as five years, but sets forth time periods during 
which the statute of limitations is tolled. In a case where 
criminal prosecution is pursued, the statute for bringing an 
administrative proceeding is tolled from the date of indictment 
until 6 months after the date the criminal action is concluded. This 
will preserve the government's civil recourse against a violator 
without endangering the pursuit of a criminal prosecution.
    The U.S. may impose sanctions on a foreign person found to 
be in violation of export controls pursuant to a multilateral 
regime. This Act largely recodifies Sections 11A through 11C of 
the expired Export Administration Act of 1979, with changes to 
remove references to the former Soviet Union and the former 
Coordinating Committee. In addition, Sections 11A (i) and (k) 
pertaining to compensation for diversion of militarily critical 
technologies and damages for violations have been removed.
    Enforcement is strengthened further through new programs of 
the Office of Export Enforcement. The Office of Export 
Enforcement is authorized to conduct undercover investigations 
in furtherance of its responsibility to enforce the Export 
Administration Act. Procedures for the use of funds to support 
these undercover investigations are established and reporting 
requirements for such undercover investigations are set forth. 
Violations of the Export Administration Act are made predicate 
offenses for wiretap authority. A ``Patriot'' provision is 
established which permits a person providing information about 
a violation of the Act, leading to the recovery of a criminal 
or civil penalty, to be awarded up to 25% of the penalty 
recovered.
    Post shipment verifications (PSV) will continue to be an 
important part of the enforcement effort. Such verifications 
will focus on exports involving the greatest risk to national 
security including, but not limited to, exports of high 
performance computers. Section 1213 of the National Defense 
Authorization Act for Fiscal Year 1998 is repealed in order to 
allow the Secretary the discretion to commit Commerce's limited 
resources to the conduct of PSVs for the technologies and end-
users of greatest concern.
    Currently, the Office of Export Enforcement has only one 
investigator posted overseas. This is inadequate to meet the 
need for post-shipment verifications, a significant part of 
Commerce's compliance program. In support of this effort, the 
sum of $4,500,000 is authorized to hire and place 10 Office of 
Export Enforcement investigators in China, Russia, Hong Kong, 
India, Singapore, Egypt, Taiwan and other overseas posts as 
appropriate.
    To strengthen compliance with these PSVs, the Secretary may 
take action against those who refuse to allow such checks. If 
an end-user refuses to allow a post-shipment verification, 
export licenses for controlled items to this end user will be 
denied until such time as the post-shipment verification is 
conducted. If a country refuses to allow a post-shipment 
verification, the Secretary may deny the export of 
substantially identical or directly competitive items to all 
end-users in that country until such time as the country allows 
the post-shipment verification.
    The Department of Commerce is authorized $3,500,000 to hire 
additional staff to work with U.S. freight forwarders, 
important partners in exporting U.S. goods, to develop and 
implement a ``best practices'' program. This voluntary program 
will ensure that freight forwarders are facilitating exports in 
compliance the provisions of this Act.
    Procedures for administrative actions, including the 
imposition of Temporary Denial Orders, are established. A 
Temporary Denial Order (TDO) is sought when there is reasonable 
cause to believe that a person is engaging in or is about to 
engage in activity which would constitute a violation of the 
Act. In cases where a criminal indictment for violations of 
this Act or related statutes has been returned, there may be 
considerable concern on the part of the government that the 
person could continue to engage in illegal export activity. 
Therefore, criminal indictment is considered grounds for the 
issuance of a TDO.
    To assist further the Department of Commerce in the 
administration of its responsibilities in processing export 
licenses and maintaining records, the sum of $5,000,000 is 
authorized for the acquisition of a new computer system for 
export licensing and enforcement.

Title VII--Export control authority and regulations

    Title VII authorizes certain officials to implement the 
authorities granted under this Act. The title provides for the 
delegation of authority, not otherwise reserved for the 
President, to the Secretary of Commerce and, subsequently, to 
the Under Secretary of Commerce for Export Administration. The 
title also authorizes the appointment of such Under Secretary. 
In addition, the title authorizes the appointment of two 
Assistant Secretaries to assist the Secretary and Under 
Secretary in carrying out the authorities of the Act. The 
Committee intends this grant of authority to reflect the 
organizational structure currently in place at the Department 
of Commerce.
    Title VII also authorizes the President and Secretary of 
Commerce to issue regulations as necessary to carry out the Act 
and requires notification to Congress of amendments to such 
regulations.
    The Committee seeks to recodify the 1979 Act provisions 
relating to confidentiality of information, the availability of 
information to Congress and the General Accounting Office, and 
the prohibition on disclosing certain information. The Act 
increases the penalties that can be imposed for disclosure of 
confidential information. If an officer or other employee of 
the U.S. government knowingly discloses confidential 
information in violation of this Act, such person can be fined 
up to $50,000, and imprisoned not more than one year, for each 
violation. The Secretary is authorized to impose civil 
penalties of not more than $5,000 for persons who otherwise 
disclose information in violation of the Act.

Title VIII--Miscellaneous provisions

    The Committee recognizes the importance of keeping Congress 
fully informed about the conduct of export control policy. To 
that end, this Title requires the Secretary to report to 
Congress regarding export controls on an annual basis. The 
report is to include: a description of the implementation of 
the Act, including regulations issued, organizational changes, 
and delegations of Presidential authority under the Act; a 
status report regarding country tiering and the Control List; a 
description of mass market and foreign availability 
determinations, and foreign availability negotiations; 
descriptions of enforcement actions taken and sanctions 
imposed; and a detailed statistical summary of all applications 
and notifications received pursuant to the Act.
    The Title also directs the Secretary to notify the 
Congressional committees of jurisdiction whenever a violation 
of the Act poses a direct and imminent threat to national 
security.
    Any publication in the Federal Register required by the Act 
is also to be made available on the Department of Commerce 
Internet website.
    The Title contains provisions preserving delegations, 
rules, regulations, and other actions under a number of 
statutes that have governed export control policy.
    Finally, the Act requires the Secretary to make revisions 
to the Export Administration regulations required by the Act 
within 180 days.

                      SECTION-BY-SECTION ANALYSIS

Section 1. Short title; Table of Contents

    Section 1 provides that the bill may be cited as the 
``Export Administration Act of 1999.''

Section 2. Definitions

    Section 2 defines the terms used in the Act. The Committee 
notes that the definition of ``export'' is intended to 
encompass current regulatory practice.

Section 101. Commerce control list

    Section 101 directs the Secretary of Commerce to establish 
and maintain a Commerce Control List specifying the items that 
require a license or other authorization prior to export. 
Section 101(b) specifies the types of licenses or other 
authorization that can be required. Section 101(c) provides 
that no license or other authorization is required to provide 
after-market service or replacement parts, to replace on a one-
for-one basis parts that were in an item lawfully exported from 
the United States, unless the Secretary determines that a 
license is required or the after-market service or replacement 
parts materially enhances the capability of the item. Section 
101(d) provides that a license or other authorization to export 
an item includes authorization to export incidental technology 
related to the item.

Section 102. Delegation of authority

    Section 102 allows the President to delegate any authority 
granted to him under this Act. Section 102(b)(1) limits this 
delegation to officials that are appointed by the President 
with the advice and consent of the Senate. Section 102(b)(2) 
states that the President may not delegate or transfer his 
authority to overrule or modify recommendations or decisions 
made by the Secretaries of Commerce, State, or Defense.

Section 103. Public information; consultation requirements

    Section 103 requires the Secretary of Commerce to consult 
regularly with representatives from the private sector and to 
keep the public fully apprised of changes in export control 
policies and procedures.

Section 104. Right of export

    Section 104 affirms that U.S. persons have the right to 
export, except as provided in this Act.

Section 105. Export control advisory committees

    Section 105 authorizes the Secretary of Commerce to appoint 
export advisory committees, made up of representatives from 
industry and government, to provide technical advice and 
assistance to the Department of Commerce and other appropriate 
departments regarding export control policy.

Section 106. Prohibition on charging fees

    Section 106 provides that no fee may be charged to process 
an export license under this Act.

Section 201. Authority for National security export controls

    Section 201 authorizes the President to control exports for 
national security purposes to stem contributions to the 
military capability of potential adversaries; to stem the 
proliferation of weapons of mass destruction, chemical and 
biological weapons, or missile delivery systems; and to deter 
acts of international terrorism. Section 201(c) authorizes 
export controls on items that, based on the end use or end 
user, could materially contribute to the proliferation of 
weapons of mass destruction.

Section 202. National security control list

    Section 202 requires the Secretary of Commerce to establish 
and maintain a National Security Control List. The Secretary 
identifies items to be included on the List, with the 
concurrence of the Secretary of Defense, and in consultation 
with other appropriate agencies. Section 202(b)(1) requires the 
Secretary of Commerce to balance the national security risks of 
not controlling the export of an item against the economic cost 
of controlling the item, when establishing and maintaining the 
List. Section 202(b)(2) specifies certain risk factors that the 
Secretary must consider when establishing and maintaining the 
List.

Section 203. Country tiers

    Section 203 directs the President to establish a country 
tiering system within a risk management framework. The 
President must assign each country to one of five tiers for 
each controlled item or group of items. Countries that 
represent the lowest risk of diversion or misuse of an item are 
assigned to Tier 1; those representing the highest risk of 
diversion or misuse are assigned to Tier 5. Section 203(c) 
provides a number of risk factors to be used by the President 
in making this determination.

Section 204. Incorporated parts and components

    Section 204 provides that controls may not be placed on an 
item solely because the item incorporates parts or components 
that are controlled, if the part or component is valued at 25 
percent or less of the total value of the item and is essential 
to the functioning of the item, unlessthe export would prove 
detrimental to the national security of the U.S. Section 204(b) 
provides that no authority may be required for the re-export of 
foreign-made items incorporating U.S. controlled items if the U.S. 
controlled item is 25 percent or less of the total value of the item, 
or 10 percent or less for re-export to countries designated as 
terrorist countries under section 310.

Section 205. Petition process for modifying export status

    Section 205 directs the Secretary of Commerce to establish 
a process for interested persons outside of the Government to 
petition for changes to the control list.

Section 211. Determination of foreign availability and mass market 
        status

    Section 211 directs the Secretary of Commerce to review and 
determine the foreign availability and mass market status of an 
item on a continuing basis, upon a request from the Office of 
Technology Evaluation, or in response to a petition. Section 
211(c) provides that in any case in which the Secretary 
determines that an item has foreign availability or mass-market 
status, no license or other authorization shall be required for 
the export of such item, subject to a determination by the 
President in section 212 or 213. This section also amends 
section 1211(d) of the National Defense Authorization Act for 
Fiscal Year 1998 to allow for a 60-day review period for 
Congress to review presidential changes to the level of 
controlled computer speed. Section 211(d) establishes the 
criteria the Secretary must consider in making such 
determination.

Section 212. Presidential set-aside of foreign availability 
        determination

    Section 212 authorizes the President to set aside a foreign 
availability determination if failing to control the item would 
be detrimental to U.S. national security and such foreign 
availability is likely to be eliminated through negotiations 
with other countries. The President must report to Congress and 
publish notice in the Federal Register whenever a foreign 
availability determination is set aside. Section 212(b) 
provides that the presidential set-aside shall expire if 
negotiations are never commenced, negotiations end without 
success or, in any event, 18 months after the determination if 
the President has been unable to eliminate foreign availability 
through negotiations. Upon the expiration of a presidential 
set-aside, no license or other authorization shall be required 
to export the item.

Section 213. Presidential set-aside of mass-market status determination

    Section 213 authorizes the President to set aside a mass-
market status determination if failing to control the item 
constitutes a serious threat to U.S. national security and 
controlling the item would likely diminish the threat. Section 
213(b) provides the President must publish a set-aside 
determination in the Federal Register and review the set-aside 
determination every six months. The President must report to 
Congress on each review.

Section 214. Office of technology evaluation

    Section 214 establishes, in the Department of Commerce, an 
Office of Technology Evaluation to gather information and 
conduct assessments on whether items are available to 
controlled countries from a foreign source or on a mass market 
basis. Section 214(b) directs the Office to conduct a number of 
assessments, including one on the cost and effectiveness of 
export controls in light of continuing technical developments. 
All government departments and agencies are directed to share 
information with the Office.

Section 301. Authority for foreign policy export controls

    Section 301 authorizes the President to control exports for 
the purposes of promoting foreign policy objectives; promoting 
peace, stability and respect for human rights; and deterring 
and punishing acts of international terrorism. This authority 
is to be exercised by the Secretary of Commerce, Secretary of 
State, and other departments and agencies deemed appropriate. 
Section 301(c) prohibits controlling for foreign policy 
reasons, the export from a foreign country of an item 
containing parts or components produced in the United States. 
Section 301(d) prohibits controlling the export of an item for 
foreign policy purposes if the export of such item is in 
performance of a binding contract, unless the export of such 
item would constitute a serious threat to a foreign policy 
interest of the United States.

Section 302. Procedures for imposing controls

    Section 302 outlines the procedures the President must 
follow in order to impose export controls for foreign policy 
reasons. Section 302(a) requires notice to be given 45 days 
prior to the imposition of a foreign policy control to allow 
time for public comment. Section 302(b) authorizes the 
President to negotiate with the government of the foreign 
country against which the export control is imposed. Section 
302(c) directs the President to consult with Congress, prior to 
imposing a control.

Section 303. Criteria for foreign policy export controls

    Section 303 outlines the criteria that the President must 
follow when imposing export controls for foreign policy 
purposes.

Section 304. Presidential report before imposition of controls

    Section 304 directs the President to submit a report to 
Congress prior to imposing a foreign policy export control. 
Section 304(b) details the contents of such report.

Section 305. Imposition of controls

    Section 305 authorizes the President to impose a foreign 
policy export control after the report required under section 
304 is sent to Congress and notice is published in the Federal 
Register.

Section 306. Deferral authority

    Section 306 authorizes the President to impose a foreign 
policy control prior to satisfying the notice (section 302(a)) 
and reporting requirements (section 304) if deferral of 
compliance with these requirements is in the national interest, 
provided the requirements are satisfied within 60 days.

Section 307. Review, renewal, and termination

    Section 307(a) provides that export controls imposed under 
Title III shall terminate on March 31 of each renewal year 
unless specifically renewed by the President. The term 
``renewal year'' is defined as the year 2002 and every two 
years thereafter. Except that this rule does not apply to those 
export controls required by law, those targeted against any 
country designated as a country supporting international 
terrorism under Section 310, or has been in effect for less 
than one year as of February 1 of a renewal year. Section 
307(b) requires the President to consult with Congress and 
solicit public comment by publishing notice in the Federal 
Register during any review period. Section 307(c) requires the 
President to report to Congress on any export control he wishes 
to renew and describes the contents of such report. Any control 
not specifically renewed by the President at the time of review 
shall be terminated.

Section 308. Termination of controls under this title

    Section 308 requires that the President terminate any 
foreign policy control that has failed to achieve its 
objective. The section also authorizes the President to 
terminate any foreign policy export control not required by law 
at any time. Section 308(b) provides that the President may not 
terminate export controls imposed against countries designated 
under section 310 as supporting international terrorism.

Section 309. Compliance with international obligations

    Section 309 authorizes the President to control exports in 
order to comply with United Nations' resolutions, treaties, or 
other international agreements and arrangements, 
notwithstanding any other provision of the Act.

Section 310. Designation of countries supporting international 
        terrorism

    Section 310 provides criteria by which the Secretary of 
State shall determine whether a country has repeatedly provided 
support for international terrorism. Section 310(a) provides 
that a license is required for the export of items to countries 
so designated. Section 310(b) requires the Secretary of State 
to notify Congress at least 30 days before issuing a license to 
export to a terrorist country. Section 310(d) provides that a 
designation made under this section shall not be rescinded 
until and unless the President submits a report to Congress and 
details the contents of such report.

Section 401. Exemption for agricultural commodities, medicine, and 
        medical supplies

    Section 401 provides that foreign policy export controls 
shall not apply to agricultural commodities, medicine, and 
medical supplies.

Section 402. Termination of export controls required by law

    Section 402 directs the President to terminate any export 
control on agricultural commodities, medicine, and medical 
supplies required by law upon the date of enactment of the Act, 
unless specifically reimposed by law.

Section 403. Exclusions

    Section 403 provides that sections 401 and 402 do not apply 
to controls imposed on agricultural commodities, medicine and 
medical supplies for national security reasons or controls 
imposed against countries against which an embargo is in effect 
under the Trading With the Enemy Act.

Section 501. Export license procedures

    Section 501 provides the process by which export license 
applications are considered by the Secretary of Commerce and 
other departments and agencies. Section 501(a)(4) provides the 
criteria for consideration of applications. Section 501(b) 
requires that the Secretary of Commerce review all applications 
for completeness and refer such applications to the Department 
of Defense, and other appropriate agencies, within 9 days. 
Section 501(c) requires that referral agencies respond with a 
recommendation on the application within 25 days of referral. 
Any referral agencies may notify the Secretary of Commerce of 
additional information needed from the license applicant. 
Section 501(d) provides that not later than 25 days after the 
date the application is referred, the Secretary shall, if 
agreement exists among the referral agencies, issue the license 
and notify all appropriate personnel in the Department of 
Commerce, or notify the applicant of the intention to deny the 
license. All matters on which agreement does not exist among 
the departments and agencies are referred to the interagency 
dispute resolution process. Section 501(e) requires the 
Secretary, in the event a determination is made to deny a 
license, to inform the applicant of the statutory and 
regulatory basis for the denial; what, if any, modifications to 
the license would allow it to be approved; and the availability 
of appeal procedures. The applicant is allowed 20 days to cure 
the deficiencies of the application. Section 501(f) directs the 
Secretary of Commerce to establish a process by which 
applicants can appeal the denial of an application. It also 
authorizes the filing of a petition with the Secretary of 
Commerce and the filing of an action in United States District 
Court, to enforce the time limits proscribed in this section. 
Section 501(g) details certain actions that are not to be 
included in the time periods prescribed in the section. Section 
501(h) requires the Secretary of Commerce to notify the 
Secretary of Defense and other appropriate agencies of 
classification requests under this title, and requires the 
Secretary of Commerce to respond to the person making the 
request within 14 days.

Section 502. Interagency dispute resolution process

    Section 502 details the escalation procedure for reviewing 
license applications in the event an interagency agreement 
cannot be reached at the initial level of consideration. 
Section 502(b) provides that the Department of Commerce 
representative has the authority to make a decision on the 
license application at the first level of review, but allows 
any representative of a department or agency that participated 
in the interagency committee to escalate the decision to the 
next highest level of review. The section provides for 
decisions to be made by majority vote at the next levels of 
review, but allows any member of the review committee to appeal 
the decision. All matters must be resolved or referred to the 
President within 90 days of the date on which the application 
was referred to the various departments and agencies.

Section 601. International arrangements

    Section 601 encourages the President to participate in 
multilateral export control regimes to increase the 
effectiveness and transparency of export controls. Section 
601(b) requires that an annual report be sent to Congress 
evaluating the effectiveness of each multilateral export 
control regime and detailing efforts to strengthen and 
harmonize the controls of such regimes. Section 601(c) directs 
the President to establish certain features in any multilateral 
export control regimes in which the United States is a member. 
Section 601(d) directs the President to seek the cooperation of 
regime members in establishing certain features in the members' 
national export control systems. Section 601(f) requires the 
Secretary of Commerce to publish information on export control 
regimes in which the United States is a member, not later than 
120 days after the date of enactment of the Act. Whenever the 
United States joins a new regime, the Secretary shall publish 
information regarding such regime within 60 days. Section 
601(g) encourages the Secretary of Commerce to assist and 
support the export control systems of other countries.

Section 602. Foreign boycotts

    Section 602 directs the President to issue regulations 
prohibiting the participation of U.S. persons in boycotts 
imposed by a foreign country against a country that is friendly 
to the United States.

Section 603. Penalties

    Section 603 increases the penalties for violations of this 
Act. Section 603(a) provides that criminal penalties can be 
assessed up to the greater of $10 million, or 10 times the 
value of the export, for corporations and up to the greater of 
$1 million, or 10 times the value of the export, for 
individuals. Individuals can be imprisoned for up to 10 years, 
which can be increased to life imprisonment for multiple 
violations or other aggravated circumstances. Section 603(b) 
authorizes the Secretary of Commerce to require forfeitures of 
property for violations of the Act. Section 603(c) provides 
that civil penalties can be assessed up to the greater of $1 
million, or 10 times the value of the export. The Secretary can 
also deny a person's export privileges and exclude them from 
certain practices for violations of the Act.

Section 604. Multilateral export control regime violations sanctions

    Section 604 directs the President to impose sanctions on 
foreign entities that endanger U.S. national security by 
violating multilateral export control regimes. Section 604(c) 
authorizes exceptions from the imposition of sanctions in 
limited circumstances.

Section 605. Missile proliferation control violations

    Section 605 requires the President to impose sanctions on 
persons that contribute to the proliferation of missiles and 
items on the Missile Technology Control Regime (MTCR) Annex. 
Section 605(a)(3) authorizes the President to waive the 
imposition of sanctions in limited circumstances.

Section 606. Chemical and biological weapons proliferation sanctions

    Section 606 requires the President to impose sanctions on 
persons who contribute to the proliferation of chemical or 
biological weapons, or their development. Section 606(c)(2) 
authorizes the President to waive the imposition of sanctions 
in limited circumstances.

Section 607. Enforcement

    Section 607 provides various authorities to effectively 
enforce the export control requirements set forth in the bill. 
While the general enforcement provisions mirror those set forth 
in the Export Administration Act of 1979, several provisions 
are new to this Act. Section 607(g) targets post-shipment 
verifications to those exports involving the greatest risk to 
national security. Any end-user refusing a post-shipment 
verification will be denied future exports of any controlled 
item. The Secretary of Commerce is authorized to deny the 
export of a controlled item to any end-user within a country 
refusing a post-shipment verification of that same item. The 
mandatory post-shipment verification of exports of high-
performance computers exceeding a speed of 2000 million 
theoretical operations per second, contained in Section 1213 of 
the National Defense Authorization Act for Fiscal Year 1998, is 
repealed. Section 607(h) authorizes awards to persons providing 
information of violations of the Act. Section 607(i) authorizes 
$3.5 million to conduct a freight forwarder's best practices 
program. Section 607(j) authorizes $4.5 million and 10 
additional overseas investigators to increase post-shipment 
verifications. Section 607(m) authorizes $5 million for an 
export licensing and enforcement computer system.

Section 608. Administrative procedures

    Section 608 describes the administrative provisions for 
execution of authorities under this Act.

Section 701. Export control authority and regulations

    Section 701 designates the Secretary of Commerce and the 
Under Secretary of Commerce for Export Administration to carry 
out the provisions of the Act. Section 701(b)(2) authorizes the 
appointment of an Assistant Secretary for Export Administration 
and Assistant Secretary for Export Enforcement to carry out 
their respective duties.

Section 702. Confidentiality of information

    Section 702 protects the confidentiality of proprietary 
information associated with the processing of license 
applications. Section 702(b) authorizes Congress and the 
General Accounting Office to obtain information from 
appropriate departments and agencies regarding activities 
conducted in the furtherance of the Act. Section 702(d) 
provides that criminal penalties up to $50,000, and one year 
imprisonment, can be imposed on officers or employees of the 
United States for knowingly disclosing information in violation 
of the Act. Civil penalties up to $5,000 can be imposed on 
individuals for otherwise disclosing confidential information 
in violation of the Act.

Section 801. Annual and periodic reports

    Section 801 directs the Secretary of Commerce to submit to 
Congress, prior to February 1 of each year, a report to 
Congress on the administration of this Act. Section 801(b) 
details the specific items to be included in the report. 
Secretary 801(c) requires the Secretary of Commerce to notify 
Congress whenever the Secretary determines that a significant 
violation of the Act poses a direct and imminent threat to the 
national security interests of the United States, consistent 
with the protection of law enforcement activities. Section 
801(d) provides that whenever information under the Act is 
required to be published in the Federal Register, such 
information also be made available on the Department of 
Commerce Internet website.

Section 802. Technical and conforming amendments

    Section 802 lists the Act's technical and conforming 
amendments.

Section 803. Savings provisions

    Section 803 provides that this Act does not affect 
administrative or judicial proceedings commenced under the 
previous authorizing Act, the Export Administration Act of 
1979, or Executive Order 12924. Section 802(c) provides that 
determinations made under Section 6(j) of the Export 
Administration Act of 1979, or Executive Order 12924, that is 
in effect on the date of enactment of this Act, shall be deemed 
to be made under Section 310 of this Act. Section 802(d) 
requires the Secretary of Commerce to make any revisions to 
current regulations required under this Act no later than 180 
after the date of enactment of this Act.

                  CHANGE IN EXISTING LAW (CORDON RULE)

    In the opinion of the Committee, it is necessary to 
dispense with the requirements of paragraph 12 of the rule XXVI 
of the Standing Rules of the Senate in order to expedite the 
business of the Senate.

                      REGULATORY IMPACT STATEMENT

    In accordance with paragraph 11(g), XXVI of the Standing 
Rules of the Senate, the Committee makes the following 
statement regarding the regulatory impact of the bill.
    This bill reauthorizes the Export Administration Act of 
1979, which lapsed in 1994 and, in the interim, has been 
implemented by executive order. The bill retains the basic 
structure of U.S. export control law established in the 1979 
Act. The bill also continues the current licensing process, in 
most all respects, and the requirements placed on exporters of 
controlled items.
    However, the bill also increases the transparency and 
certainty of the licensing process, reducing burdens on 
exporters. Further, the bill strengthens the foreign 
availability provisions of the 1979 Act and adds a mass market 
provision, which may result in controls being lifted on some 
items.
    The bill streamlines the regulatory process by requiring 
coordination and information-sharing between the various 
Federal departments and agencies.
    For these reasons, the Committee believes that this 
legislation will have a favorable regulatory impact.

                        COST OF THE LEGISLATION

    Senate rule XXVI, section 11(b) of the Standing Rules of 
the Senate, and Section 403 of the Congressional Budget 
Impoundment and Control Act, require that each committee report 
on a bill contain a statement estimating the cost of the 
proposed legislation, prepared by the Congressional Budget 
Office. This statement has been requested from the 
Congressional Budget Office, but it was not available at the 
date of filing of this report. When the information is made 
available to the Committee, it will be placed in the 
Congressional Record.

                    ADDITIONAL VIEWS OF SENATOR MACK

    A clear and concise policy on the export of sensitive 
technology is clearly in the national interest. I agree it is 
very important to continue working to move this bill forward. 
This is not only because American businesses looking to export 
technology abroad need to know the rules, but also because the 
Executive branch needs effective tools safeguard our national 
security and protect our national interests.
    I think it is important to remember why the current system 
doesn't work and the goals we had in mind after the release of 
the Cox report earlier this year. We set out to develop a 
simpler, more effective, process that gave technology to our 
allies and friends and withheld it from our enemies. And we 
wanted to ensure our own national security was better protected 
after the documented leaks of dual-use technology that were 
allowed under the present system.
    While the print before us has made progress on both these 
points, in my view it still falls short of the mark. Let me 
outline, briefly, my major concerns.
    First, the Department of Commerce remains the predominant 
agency in the export evaluation process. This concerns me 
because of this agency's inherent conflict of interest. We 
cannot reasonably expect an export promotion agency to fairly 
or competently evaluate matters of national security. And 
recently released performance evaluations of the Department's 
current enforcement capabilities call into serious question 
whether this is the agency we want to put in charge of policing 
the export of dual-use technology. I appreciate the enhanced 
role for the Department of Defense in this bill. In my view 
this should be significantly strengthened before we consider 
this legislation on the floor.
    My other major concern is about the foreign policy export 
control section of the bill. This section states that the 
administration must have specific objectives for implementing 
the controls, do rigorous cost/benefit analysis on each 
control, and remove the controls after two years if the 
``objectives'' have not been met. I believe this eliminates the 
ability of the Executive to implement conscience-based controls 
on the export of sensitive items to outlaw regimes. This 
portion of the bill also needs some work as this bill moves 
through the process.
    I appreciate the hard work that has gone into drafting the 
print reported by the Committee. I look forward to continuing 
discussions with the sponsors and others to ensure the bill 
takes into account my concerns.
                                                       Connie Mack.

                                  
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