Export Controls: Issues to Consider in Authorizing a New Export  
Administration Act (28-FEB-02, GAO-02-468T).			 
								 
Congress now has before it two bills that would enact a new legal
basis for controls over exports of dual use goods and services. A
new Export Administration Act will need to balance stakeholder	 
interests, assess the national security risks presented by end	 
users, and balance the needs of exporters with foreign policy and
national security interests. Both bills seek to balance these	 
interests by involving the departments of Commerce, Defense and  
State. However, the lack of clear provisions raises questions	 
about the balance between U.S. foreign policy and national	 
security interests with economic interests. The House bill places
greater emphasis on protecting foreign policy and national	 
security interests, while the Senate bill emphasizes economic	 
interests. Moreover, a series of GAO reports indicate the new	 
legislation alone will not ensure that regulations and practices 
are implemented as Congress intended. Congress will need to	 
oversee executive branch compliance with the law.		 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-02-468T					        
    ACCNO:   A02842						        
  TITLE:     Export Controls: Issues to Consider in Authorizing a New 
Export Administration Act					 
     DATE:   02/28/2002 
  SUBJECT:   Authorization					 
	     Congressional oversight				 
	     Export regulation					 
	     Proposed legislation				 
	     Congressional/executive relations			 

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GAO-02-468T
     
                  United States General Accounting Office

GAO Testimony

Before the Committee on Armed Services, U.S. House of Representatives

For Release on Delivery Expected at 1:00 p.m., EST,

Thursday, February 28, 2002 EXPORT CONTROLS

Issues to Consider in Authorizing a New Export Administration Act

Statement of Joseph A. Christoff, Director, International Affairs and Trade

GAO-02-468T

Summary

Mr. Chairman and Members of the Committee,

I am pleased to be here today to discuss the proposed authorization of the
Export Administration Act (EAA) and to highlight key provisions in the House
and Senate bills. The law authorizing controls over exports of dual use
goods and services?those having both commercial and military
applications-terminated in 1994 and was extended through law and executive
order.1 Congress now has before it two different bills-H.R. 2581 and S.
149?that would enact a new legal basis for such controls.

We examined the two bills to determine how they would balance often
competing economic, national security, and foreign policy interests at key
decision points. We also identified issues drawn from our past work that
demonstrate the need for continuous oversight to ensure that the executive
branch implements the law as Congress intended.

A new Export Administration Act will need to balance stakeholder interests,
assess the national security risks presented by end users, and balance the
needs of exporters with foreign policy and national security interests. Both
bills seek to balance these interests by involving the departments of
Commerce, Defense, and State. In some cases, however, the lack of clear
provisions raises questions about the balance of U.S. foreign policy and
national security interests with economic interests.

Overall, in balancing these interests, the House bill places greater
emphasis on protecting foreign policy and national security interests, while
the Senate bill emphasizes economic interests. These differences are
exemplified in the following key areas:

* The House bill requires the Secretary of Commerce to obtain the
concurrence of the secretaries of State and Defense when adding or removing
items from the list of controlled items. In contrast, the Senate bill only
requires the concurrence of the Secretary of Defense. However, each bill
gives the Secretary of Commerce sole authority to remove items from the list
without the concurrence of either the secretaries of Defense

1Under Executive Order 12924, issued August 19, 1994 (59 Fed. Reg. 43437),
the president, to the extent permitted by law, extended the application of
the act. Most recently, application of the act was extended by Executive
Order 13222, August 17, 2001 (66 Fed. Reg. 44025).

or State, if the secretary determines that items are available from foreign
sources or on a mass-market basis.

* The House bill includes a "presumption of denial" provision that directs
the executive branch to presume that it should deny applications under
specific conditions. The Senate bill does not contain similar language aimed
at guiding U.S. licensing decisions.

Moreover, a series of reports we have issued on export controls indicates
that new legislation alone will not ensure that regulations and practices
are implemented as Congress intended. Congress will need to oversee
executive branch compliance with the law. Our past work has identified
several instances in which the executive branch has not followed
congressional direction in implementing export controls or has implemented
the controls in a confusing or inconsistent manner.

* The President's January 2001 decision to raise the licensing thresholds
for high performance computers was not adequately justified as required by
law.

* The Department of Commerce's regulations regarding U.S. licensing
requirements for missile-related exports to Canada are inconsistent with the
amended Export Administration Act.

* The Departments of Commerce, State, and Defense have had difficulty
agreeing on licensing jurisdiction and clear procedures for protecting
satellite-related technology, which has created confusion and other problems
for the agencies and exporters.

* The Department of Commerce has had continuous difficulties in

Background

monitoring use of sensitive exports, especially in conducting post-shipment
visits. Oversight of this function will continue to be necessary, especially
when countries restrict U.S. access to facilities that receive sensitive
U.S. exports.

U.S. policy regarding exports of sensitive dual-use technologies-that is,
items with military and civilian uses?seeks to balance economic, national
security, and foreign policy interests. The Export Administration Act of
1979, as amended, terminated on August 20, 1994, and was extended through
several executive orders and law. Under the act, the president has the
authority to control and require licenses for the export of dual use items
such as nuclear, chemical, biological, missile, or other technologies that
may pose a national security risk or foreign policy concern. The

president also has the  authority to revise or remove those controls as U.S.
concerns and interests change. The Commerce Department licenses

2

sensitive dual-use items under the Act.

A  new  Export  Administration  Act  must take  into  consideration  several
important economic and national security trends:

*  increased globalization of  markets and  an increasing number  of foreign
competitors,

* rapid advances in technologies and products,

*  a  growing dependence  by  the  U.S. military  on commercially  available
dual-use items, and

* heightened threats of terrorism and the proliferation of weapons of mass

Balancing Multiple Economic, National Security, and Foreign Policy Interests

destruction.

A new Export Administration Act will need to balance stakeholder interests,
assess the national security risks presented by end users, and balance the
needs of exporters with foreign policy and national security interests. Both
bills seek to balance these interests by involving the departments of
Commerce, Defense, and State. In some cases, however, the lack of clear
provisions raises questions about the balance of U.S. foreign policy and
national security interests with economic interests.

Balancing the Needs of Stakeholders

Both bills would establish a National Security Control List of controlled
items that the Department of Commerce would review on a continuing basis
(section 202). This list serves to control dual-use items that countries of
concern could use to proliferate weapons of mass destruction and promote
terrorism. The Senate bill would require the Secretary of Commerce to obtain
the concurrence of the Secretary of Defense before adding or removing items
from this list. However, it would only require the Secretary of Commerce to
consult with the heads of other agencies that the secretary deems
appropriate. State's potential exclusion from this process raises the
possibility that U.S. foreign policy or national security interests may not
be properly considered. In contrast, the House bill requires the concurrence
of the secretaries of State and Defense to modify the list.

2The State Department licenses munitions items under the Arms Export Control
Act (P.L. 90-629).

However, Section 211 of each bill gives the Secretary of Commerce sole
authority to remove items from the list without the concurrence of either
the secretaries of Defense or State, if the secretary determines that items
are available from foreign sources or on a mass-market basis.3 Only the
president would be able to reverse the Secretary of Commerce's decision.

In addition, State's role in reviewing where items fall on the control list
differs in each bill. Where an item falls on the list is important because
its placement determines what reasons for control apply and whether a
license is required. The House bill requires the Secretary of Commerce to
notify the secretaries of State and Defense about exporter requests for
assistance in determining where an item is placed on the list or whether a
license is required (subsection 401(h)(1)). The Senate bill, however, does
not include the Secretary of State, raising the possibility that Commerce
might determine that an item is not subject to export licensing requirements
without State's input. Only the House bill provides a mechanism for
resolving disputes among the three agencies on this issue.

Moreover, neither bill provides for a role for the Department of Defense in
executive branch assessments of the impact of a potential export on the
military capabilities of a country supporting terrorism. Section 310 of both
bills would require only the secretaries of State and Commerce to conduct
such assessments and to notify Congress before approving an export license.
Without the Department of Defense's input into these important military
assessments, Congress might receive notifications that do not fully reflect
the potential military impact of these exports.

Assessing National Security Risks Presented by End Users

Section 201 of the House bill places greater emphasis on national security
interests than on economic interests by establishing an additional standard
for export applications for certain end users. The House bill includes a
"presumption of denial" provision that directs the executive branch to
presume that it should deny applications under specific conditions.
Applications should be denied to (1) end users located in countries not
adhering to export control regimes that are involved in developing weapons
of mass destruction or (2) when the export would contribute to a country's
military capabilities in a manner detrimental to the national

3Section 211(b) establishes a petition process by which the Secretary of
Commerce evaluates an item's foreign availability or mass-market status in
consultation with the departments of Defense and State, other appropriate
agencies, and the Office of Technology Evaluation.

security interests of the United States or its allies. The Senate bill does
not contain similar language aimed at guiding U.S. policy, which is to
encourage exports unless U.S. national security and foreign policy
objectives are at risk.

Balancing the Needs of Exporters with Foreign Policy and National Security
Interests

Providing for Congressional Oversight of Long-standing Implementation Issues

The EAA seeks to balance exporters' need for timely review of export license
applications with the government's need to thoroughly review these
applications. Section 401 of the Senate bill places greater relative
emphasis on exporters' needs, while the House bill shifts the balance in
favor of the government's need for thorough review. Both bills contain
provisions establishing timeframes for the government to review export
license applications and criteria for extending the timeframes. Under export
administration regulations and executive order, agencies have 30 days to
review license applications, and the entire process must be completed in 90
days. Under the timeframes established in both bills, the executive branch
has 30 days to decide whether to approve or deny an export license
application. Section 401(g) of the House bill contains criteria for
extending the export licensing review timeframes by up to 60 days based on
the complexity of the analysis or potential national security or foreign
policy impact of the export. The House bill also allows for delays of
unspecified duration necessary to obtain information or assessments from
intelligence agencies. The Senate bill does not contain these provisions.

A series of reports we have issued on export controls indicates that new
legislation alone will not ensure that regulations and practices are
implemented as Congress intended. Our work has shown that agencies do not
always comply with the law and that the executive branch has not always
implemented policies and procedures clearly and consistently.

Agencies Do Not Always  Our past reviews of export controls have highlighted
instances when the

Comply  with the  Law  executive  branch  has not  implemented policies  and
procedures  as  Congress intended.  In  March  2001, we  testified that  the
president's

decision to raise the licensing thresholds for high performance computers
was not adequately justified.4 While the president's report recognized that
high performance computing capabilities will become increasingly available
to other countries through computer clustering, the report failed both to
address all militarily significant uses for computers at the new thresholds
and to assess the national security impact of such uses, as required by law.
The inadequacies of the president's report were further compounded by
continued use of a flawed measure for assessing computer performance.

In May 2001, we reported that Commerce's regulations regarding U.S.
licensing requirements for missile-related exports are inconsistent in one
instance with the amended Export Administration Act.5 Specifically, this act
requires an individual license for any export of dual-use missile equipment
and technology to any country. However, Commerce regulations exempt from the
licensing regime missile equipment and technology to be exported to Canada.
Commerce officials did not cite any statutory justification for this
exemption, which predated the amendment. Rather, Commerce officials assumed
that Congress did not intend to end the licensing exemption. Congressional
oversight is needed to ensure that Commerce's proposed changes in its
regulation comply with the law.

Executive Branch Has Not Always Implemented Policies and Procedures Clearly
and Consistently

Continued congressional monitoring is also needed in examining how the
executive branch uses the analytical tools available to justify export
licensing. In February 2002, we reported that the executive branch does not
have a sound analytical basis for justifying the current export controls on
semiconductor manufacturing equipment to China.6 Specifically, we found that
U.S. agencies have not assessed the foreign availability of this technology
or the cumulative effects of such exports on U.S. national security
interests. To remedy these shortcomings, we recommended that the Departments
of Commerce, Defense, and State complete this analysis,

4U.S. General Accounting Office, Export Controls: System for Controlling
Exports of High Performance Computers Is Ineffective, GAO-01-10 (Washington,
D.C.: December 20, 2000).

5U.S. General Accounting Office, Export Controls: Regulatory Change Needed
to Comply with Missile Technology Licensing Requirements, GAO-01-530
(Washington, D.C.: May 31, 2001).

6U.S. General Accounting Office, Export Controls: Rapid Advances in China's
Semiconductor Industry Underscore Need for Fundamental U.S. Policy Review,
GAO-02-151 (Washington, D.C.: February19, 2002 FOUO)

which would provide a sound basis for an updated policy and the development
of new controls, if appropriate, for protecting U.S. security interests.

Jurisdictional disputes and lack of interagency coordination have also
surrounded the export of satellites and related items for the past 10 years.
In September 1999, we reported that shared licensing jurisdiction and
unclear roles and responsibilities of each agency in licensing and
monitoring these exports have created confusion and other problems.7 We also
found that Commerce, State, and Defense have had difficulty agreeing on
clear procedures for safeguards to protect satellite-related technology to
ensure compliance by U.S. exporters with U.S. satellite export regulations.
The House bill (Title VII) would transfer the licensing of satellites and
related items from State to Commerce but leaves jurisdiction over certain
defense-related services to State. Regardless of whether a change is made in
satellite jurisdiction, clear lines of responsibility for each agency and
clear jurisdiction over components, technical data, and services related to
satellite exports would be beneficial.

In March 2001, we reported that the end-use monitoring process continues to
be a weakness of the U.S. export control system.8 We have also reported
several times since 1995 that the U.S. government has had difficulties in
confirming the appropriate use of exported technologies.9 Access problems
are often the issue, particularly with countries of concern such as China
that continue to restrict U.S. officials' visits to recipient facilities.
For example, China has long restricted U.S. officials' access to facilities
that received U.S. high performance computers. According to a Commerce
official, these restrictions have resulted in a backlog of about 700 post-

7U.S. General Accounting Office, Export Controls: Better Interagency
Coordination Needed on Satellite Exports, GAO/NSIAD-99-182 (Washington,
D.C.: September 17, 1999).

8U.S. General Accounting Office, Export Controls: Inadequate Justification
for Relaxation of Computer Controls Demonstrates Need for Comprehensive
Study, GAO-01-534T (Washington, D.C.: March 15, 2001).

9U.S. General Accounting Office, Export Controls: Some Controls Over
Missile-Related Technology Exports to China Are Weak, GAO/NSIAD-95-82
(Washington, D.C.: April 17, 1995); Export Controls: Information on the
Decision to Revise High Performance Computer Controls, GAO/NSIAD-98-196
(Washington, D.C.: September 16, 1998); Hong Kong's Reversion to China:
Effective Monitoring Critical to Assess U.S. Nonproliferation Risks,
GAO/NSIAD-97-149 (Washington, D.C.: May 22, 1997); Export Controls:
Challenges and Changes For Controls on Computer Exports, T-NSIAD-00-187
(Washington, D.C.: May 26, 2000).

shipment visits. In addition, the U.S. government makes limited efforts to
monitor exporters' and users' compliance with the conditions set forth in
export licenses for high performance computers. In an effort to ensure that
sensitive U.S. exports are used only for intended purposes, section 506 of
the bills provide for strengthened post-shipment monitoring and clear
consequences for countries refusing to allow such monitoring. The bill also
authorizes appropriations of $4.5 million for end-use verifications and
increased funding to hire 10 additional overseas investigators. Nonetheless,
our work suggests that there will be a need for continued oversight of this
issue.

Reports we have issued since 1995 indicate that limitations of both
government and private industry screening of proposed end users of sensitive
American exports has long been an issue.10 For example, the Commerce
Department does not have complete intelligence information on license
applicants that may serve as fronts for proliferators or terrorists engaged
in illicit activities.11 Also, the U.S. government increasingly relies on
industry to determine whether an export needs to be licensed, even though
industry has raised questions about its capability and willingness to make
this assessment without government support.

In conclusion, I would like to stress that export controls are just one of
several policy instruments that the United States relies upon to combat the
proliferation of weapons of mass destruction, address the threat of
terrorism, and secure U.S. national security interests. Other U.S.
non-proliferation policy instruments include international treaties (such as
the Nuclear Non-Proliferation Treaty), multilateral export control regimes,
and programs aimed at helping former Soviet states control and eliminate
their weapons of mass destruction. Each instrument is important, but each
has limitations. The challenge now facing Congress is to develop an export
control process that will reinforce and complement these instruments, while
balancing broader U.S. security, foreign policy, and economic interests.

10U.S. General Accounting Office, Export Controls: Some Controls Over
Missile-Related Technology Exports to China Are Weak, GAO/NSIAD-95-82
(Washington, D.C.: April 17, 1995); Export Controls: Information on the
Decision to Revise High Performance Computer Controls, GAO/NSIAD-98-196
(Washington, D.C.: September 16, 1998).

11U.S. General Accounting Office, Weapons of Mass Destruction: Assessing
U.S. Policy Tools for Combating Proliferation, GAO-02-226T (Washington,
D.C.: November 7, 2001).

Conclusion

Mr. Chairman and Members of the Subcommittee, this concludes my prepared
statement. I will be happy to answer any questions you may have.

Contact and For future contacts regarding this testimony, please contact
Joseph Christoff at (202) 512-8979. Stephen M. Lord, Lynn Cothern, Jeffrey
D.

Acknowledgements Phillips, Pierre R. Toureille, Anne Marie Lasowski, and
Mark Speight made key contributions to this testimony.

Related GAO Products

Export Controls: Reengineering Business Processes Can Improve Efficiency of
State Department License Reviews. GAO-02-203. December 31, 2001.

Weapons  of Mass  Destruction:  Assessing U.S.  Policy Tools  for  Combating
Proliferation, GAO-02-226T. November 7, 2001.

Export Controls: Clarification of  Jurisdiction for Missile Technology Items
Needed. GAO-02-120. October 9, 2001.

Defense Trade:  Information on U.S. Weapons  Deliveries to the Middle  East.
GAO-01-1078. September 21, 2001.

Export  Controls: State  and Commerce  Department License  Review Times  Are
Similar. GAO-01-528. June 1, 2001.

Export Controls: Regulatory Change  Needed to Comply with Missile Technology
Licensing Requirements. GAO-01-530. May 31, 2001.

Export  Controls:  System  for  Controlling  Exports  of  High  Performance
Computers Is Ineffective. GAO-01-10. December 20, 2000.

Defense  Trade: Observations  on  Issues Concerning  Offsets.  GAO-01-278T .
December 15, 2000.

Defense  Trade: Data  Collection and  Coordination on  Offsets. GAO-01- 83R.
October 26, 2000.

Defense  Trade:  Contractors  engage  in  Varied  International  Alliances.
GAO/NSIAD-00-213. September 7, 2000.

Defense Trade: Analysis of Support for Recent Initiatives. GAO/NSIAD-00-191.
August 31, 2000.

Foreign  Military Sales:  Changes Needed  to Correct  Weaknesses in  End-Use
Monitoring Program.GAO/NSIAD-00-208. August 24, 2000.

Defense Trade: Status of  the Department of Defense's Initiatives on Defense
Cooperation. GAO/NSIAD-00-190R. July 19, 2000.

Defense Trade: Identifying Foreign  Acquisitions Affecting National Security
Can Be Improved. GAO/NSIAD-00-144. June 29, 2000.

Export Controls:  Challenges and  Changes For Controls on  Computer Exports.
T-NSIAD-00-187. May 26, 2000.

Export  Controls:  National Security  Risks  and  Revisions to  Controls on
Computer Systems. T-NSIAD-00-139. March 23, 2000.

Export  Controls:  National Security  Risks  and  Revisions To  Controls on
Computers. T-NSIAD-00-104. February 28, 2000.

Foreign  Military  Sales:  Efforts to  Improve  Administration  Hampered by
Insufficient Information. GAO/NSIAD-00-37. November 22, 1999.

Export Controls:  Statutory Reporting  Requirements for Computers  Not Fully
Addressed. NSIAD-00-45. November 5, 1999.

Export  Controls: Implementation of  the 1998  Legislative Mandate for  High
Performance Computers. T-NSIAD-00-53. October 28, 1999.

Foreign  Military Sales:  Review Process  for Controlled Missile  Technology
Needs Improvement. GAO/NSIAD-99-231. September 29, 1999.

Export Controls:  1998 Legislative  Mandate for High  Performance Computers.
NSIAD-99-208. September 24, 1999.

Export  Controls:  Better  Interagency  Coordination  Needed  on  Satellite
Exports. NSIAD-99-182. September 17, 1999.

Defense Trade: Department of Defense Savings From Export Sales Are Difficult
to Capture. GAO/NSIAD-99-191. September 17, 1999.

Defense Trade:  Status of  the Defense Export  Loan Guarantee Program.  GAO/
NSIAD-99-30. December 21, 1998.

Defense  Trade: U.S. Contractors  Employ Diverse  Activities to Meet  Offset
Obligations. GAO/NSIAD-99-35. December 18, 1998.

Defense  Trade:  Weaknesses Exist  in  DOD  Foreign Subcontract  Data.  GAO/
NSIAD-99-8. November 13, 1998.

Export Controls: Information on the Decision to Revise High Performance
Computer Controls. NSIAD-98-196. September 16, 1998.

Export  Controls:  Changes  in  Controls  Applied  to  the Export  of  High
Performance Computers. T-NSIAD-98-250. September 16, 1998.

Export Controls: National Security Issues and Foreign Availability for High
Performance Computer Exports. NSIAD-98-200. September 16, 1998.

China: Military Imports From  the United States and the European Union Since
the 1989 Embargoes. NSIAD-98-176. June 16, 1998.

China:  U.S.  and  European  Union Arms  Sales  Since  the  1989 Embargoes.
T-NSIAD-98-171. April 28, 1998.

Hong Kong's Reversion to China: Effective Monitoring Critical to Assess U.S.
Nonproliferation Risks. NSIAD-97-149. May 22, 1997.

Export  Controls: Sales of  High Performance  Computers to Russia's  Nuclear
Weapons Laboratories. T-NSIAD-97-128. April 15, 1997.

Export Controls:  Change in Export Licensing  Jurisdiction for Two Sensitive
Dual-Use Items. GAO/NSIAD-97-24. January 14, 1997.

Export Controls:  Sensitive Machine Tool  Exports to China.  GAO/NSIAD-97-4.
November 19, 1996.

Defense Conversion. NSIAD-96-230R. September 30, 1996.

Nuclear  Weapons: Russia's  Request  for the  Export of  U.S. Computers  for
Stockpile Maintenance. T-NSIAD-96-245. September 30, 1996.

Export Controls:  Some Controls  Over Missile-Related Technology  Exports to
China Are Weak. GAO/NSIAD-95-82. April 17, 1995.
*** End of document. ***