[Congressional Record: May 22, 2008 (Senate)]
[Page S4782-S4787]
EXPORT CONTROL SYSTEM
Mr. AKAKA. Mr. President, I wish today to discuss the U.S. export
control system bureaucracy and its impact on our national interests.
Recently I chaired a hearing of the Oversight of Government
Management Subcommittee of the Senate Homeland Security and
Governmental Affairs Committee entitled ``Beyond Control: Reforming
Export Licensing Agencies for National Security and Economic
Interests.'' Some of the issues explored in the hearing were: revising
the multilateral coordination and enforcement aspects of export
controls; addressing weaknesses in the interagency process for
coordinating and approving licenses; reviewing alternative bureaucratic
structures or processes to eliminate exploitable seams in our export
control system; and ensuring that there are enough qualified licensing
officers to review efficiently license applications.
Witnesses from the State Department's Bureau of Political-Military
Affairs, the Commerce Department's Bureau of Industry and Security, and
the Department of Defense's Defense Technology Security Administration
responded to almost a decade's worth of analysis, recommendations,
reports, and testimony from the Government Accountability Office, GAO.
The GAO witness on the panel identified numerous instances of
inefficiency and ineffectiveness in the U.S. export control system,
including poor strategic management, insufficient interagency
coordination, shortages of manpower, short-term fixes for long-term
problems, and inadequate information systems.
Although the agency witnesses acknowledged their progress in
addressing these shortcomings, they also articulated a deeper need for
greater reform in response to the challenges of globalization in the
21st century. I would go one step further then the administration
witnesses. The U.S. export control system is a relic of the Cold War
and does not effectively meet our national and economic security needs.
Recent examples demonstrate the challenges of controlling sensitive
exports. Dual-use technology has been diverted through Britain and the
United Arab Emirates, UAE, to Iran. A recent attempt by two men to
smuggle sensitive thermal imaging equipment to China shows that Iran is
not alone in
[[Page S4783]]
its desire for sensitive technology. However, the effort to control the
flow of dual-use technology goes beyond our borders. Working with the
international community is critical as technologies which were once
only produced in the U.S. are now being produced elsewhere.
The second group of witnesses, representing many decades of
government and private sector experience with export controls,
identified recommendations that could begin to modernize this system:
eliminating the distinction between weapons and dual-use technology;
reducing the total number of items on control lists; implementing
project licenses that cover a multitude of items instead of relying on
an item-by-item licensing process; passing an updated Export
Administration Act; focusing on multilateral export controls and
harmonizing them with our allies; and reestablishing high-level policy
management of both dual-use and munitions exports at the White House.
Mr. President, I would like to ask to have printed in the Record,
following my remarks, a CRS memorandum providing an excellent overview
of U.S export controls.
An opportunity to revise our ineffective and inefficient export
control system will accompany the arrival of the new administration in
January. I urge my colleagues to consider these recommendations for
improving the management and bureaucracy of the export control system
as the Congress debates and updates relevant legislation.
Mr. President, I ask unanimous consent to have the two CRS memoranda
to which I referred printed in the Record.
There being no objection, the material was ordered to be printed in
the Record, as follows:
Congressional Research Service,
Washington, DC, April 21, 2008.
Memorandum
Re: Background for Hearing on U.S. Export Controls.
To: Senate Homeland Security and Government Affairs
Committee; Subcommittee on Oversight of Government
Management; the Federal Workforce; and the District of
Columbia.
From: Ian F. Fergusson, Specialist in International Trade and
Finance; Richard F. Grimmett, Specialist in National
Defense, Foreign Affairs, Defense, and Trade Division.
This memorandum responds to your request for background
information in support of your upcoming hearing on the U.S.
export control system. The memo discusses the legislative
authority, structure, and function of U.S. dual-use and
defense export controls. It also discusses current issues
related to the administration of those controls. If you have
any questions concerning the material in this memorandum,
please contact Ian Fergusson at 7-4997 or Richard Grimmett at
7-7675.
Overview of the U.S. Export Control System
The United States restricts the export of defense items or
munitions, so-called ``dual-use'' goods and technology,
certain nuclear materials and technology, and items that
would assist in the proliferation of nuclear, chemical and
biological weapons or the missile technology to deliver them.
Defense items are defined by regulation as those
``specifically designed, developed, or configured, adapted,
or modified for a military application, has neither
predominant civilian application nor performance equivalent
to an item used for civilian application, or has significant
military or intelligence application ``such that control is
necessary.'' Dual-use goods are commodities, software, or
technologies that have both civilian and military
applications.
U.S. export controls are also utilized to restrict exports
to certain countries in which the United States imposes
economic sanctions. Through the Export Administration Act
(EAA), the Arms Export Control Act (AECA), and other
authorities, Congress has delegated to the executive branch
its express constitutional authority to regulate foreign
commerce by controlling exports. In its administration of
this authority, the executive branch has created a diffuse
system by which exports are controlled by differing agencies
under different regulations. This section describes the
characteristics of the dual-use, munitions, and
nuclear controls. The information contained in the section
also appears in chart form in Appendix 1.
Various aspects of this system have long been criticized by
exporters, non-proliferation advocates and other stakeholders
as being too rigorous, insufficiently rigorous, lax,
cumbersome, too stringent, or any combination of these
descriptions. In January 2007, the Government Accountability
Office (GAO) designated government programs designed to
protect critical technologies, including the U.S. export
control system, as a `high-risk area' ``that warrants a
strategic re-examination of existing programs to identify
needed changes.'' The report cited poor coordination among
export control agencies, disagreements over commodity
jurisdiction between State and Commerce, unnecessary delays
and inefficiencies in the license application process, and a
lack of systematic evaluative mechanisms to determine the
effectiveness of export controls.
The Dual-Use System
The Export Administration Act (EAA). The EAA of 1979 (P.L.
96-72) is the underlying statutory authority for dual-use
export controls. The EAA, which is currently expired,
periodically has been reauthorized for short periods of time.
The last incremental extension expired in August 2001. At
other times and currently, the export licensing system
created under the authority of EAA has been continued by the
invocation of the International Emergency Economic Powers Act
(IEEPA) (P.L. 95-223). EAA confers upon the President the
power to control exports for national security, foreign
policy or short supply purposes. It also authorizes the
President to establish export licensing mechanisms for items
detailed on the Commerce Control List (see below), and it
provides some guidance and places certain limits on that
authority.
Several attempts to rewrite or reauthorize the EAA have
occurred over the years. The last comprehensive effort took
place during the 107th Congress. The Senate adopted
legislation, S. 149, in September 2001, and a competing House
version, H.R. 2581, was developed by the then House
International Relations Committee, and the House Armed
Services Committee. The full House did not act on this
legislation. More modest attempts to update the penalty
structure and enforcement mechanisms in context of renewing
the 1979 Act for a period of 5 years has been introduced in
the 110th Congress as the Export Enforcement Act of 2007 (S.
2000).
The EAA, which was written and amended during the Cold War,
was based on strategic relationships, threats to U.S.
national security, international business practices, and
commercial technologies many of which have changed
dramatically in the last 25 years. Some Members of Congress
and most U.S. business representatives see a need to
liberalize U.S. export regulations to allow American
companies to engage more fully in international competition
for sales of high-technology goods. Other Members and some
national security analysts contend that liberalization of
export controls over the last decade has contributed to
foreign threats to U.S. national security, that some controls
should be tightened, and that Congress should weigh further
liberalization carefully.
Administration. The Bureau of Industry and Security in the
Department of Commerce administers the dual-use export
control system. The export licensing and enforcement
functions that now form the agency mission of BIS were
detached from the International Trade Administration in
1980 in order to separate it from the export promotion
functions of the Department of Commerce. In FY2006, BIS
processed 18,941 licenses with a value of approximately
$36 billion. During the same fiscal year, BIS approved
15,982 applications, denied 189, and returned 2,763
(usually because a license was not necessary), for an
approval rate of 98.8%, disregarding the returned
licenses. BIS was appropriated $72.9 million in FY2008
with budget authority for 365 positions. The President's
FY2009 request for BIS is $83.7 million, a 14.8% increase
from FY2008, with budget authority for 396 positions. In
addition to its export licensing and enforcement
functions, BIS also enforces U.S. anti-boycott regulations
concerning the Arab League boycott against Israel.
Implementing Regulations. The EAA is implemented by the
Export Administration Regulations (EAR) (15 CFR 730 et seq).
As noted above, the EAR is continued under the authority of
the International Economic Emergency Powers Act (IEEPA) in
times when the EAA is expired. The EAR sets forth licensing
policy for goods and destinations, the applications process
used by exporters, and the Commerce Control List (CCL). The
CCL is the list of specific goods, technology, and software
that are controlled by the EAR. The CCL is composed of ten
categories of items: Nuclear materials, facilities, and
equipment; materials, organisms, microorganisms, and toxins;
materials processing; electronics; computers;
telecommunications and information security; lasers and
sensors; navigation and avionics; marine; and propulsion
systems, space vehicles, and related equipment. Each of these
categories is further divided into functional groups:
Equipment, assemblies, and components; test, inspection, and
production equipment; materials; software; and technology.
Each controlled item has an export control classification
number (ECCN) based on the above categories and functional
group. Each ECCN is accompanied by a description of the item
and the reason for control. In addition to discrete items on
the CCL, nearly all U.S. origin commodities are ``subject to
the EAR.'' This means that any product ``subject to the EAR''
may be restricted to a destination based on the end-use or
end-user of the product. For example, a commodity that is not
on the CCL may be denied if the good is destined for a
military end-use, or to an entity known to be engaged in
proliferation.
Licensing Policy. The EAR sets out the licensing policy for
dual-use commodities. Items are controlled for reasons of
national security, foreign policy, or short-supply. National
security controls are based on a common multilateral control
list, however the
[[Page S4784]]
countries to which we apply those controls are based on U.S.
policy. Foreign Policy controls may be unilateral or
multilateral in nature. Items are controlled unilaterally for
anti-terrorism, regional stability, or crime control
purposes. Anti-terrorism controls proscribe nearly all
exports to the 5 state sponsors of terrorism. Foreign policy-
based controls are also based on adherence to multilateral
non-proliferation control regimes such the Nuclear Suppliers'
Group, the Australia Group (chemical and biological
precursors), and the Missile Technology Control Regime.
The EAR sets out timelines for the consideration of dual-
use licenses and the process for resolving interagency
disputes. Within 9 days from receipt, Commerce must refer the
license to other agencies (State, Defense, or NRC as
appropriate), grant the license, deny it, seek additional
information, or return it. If the license is referred to
other agencies, the agency to which it is referred must
recommend the application be approved or denied within thirty
days. The EAR provides a dispute resolution process for a
dissenting agency to appeal an adverse decision. The
interagency dispute resolution process is designed to be
completed within 90 days. This process is depicted
graphically in Appendix 2.
Enforcement and Penalties. Because of the expiration of the
EAA, current penalties for export control violations are
based on those contained in the International Emergency
Economic Powers Act (IEEPA) (50 U.S.C. 1701 et seq.). For
criminal penalties, IEEPA sanctions individuals up to $1
million or up to 20 years imprisonment, or both, per
violation [50 U.S.C. 1705(b)]. Civil penalties under IEEPA
are set at $250,000 per violation. IEEPA penalties were
recently raised to the current levels by the International
Emergency Economic Powers Enhancement Act (P.L. 110-96),
which was signed by President Bush on October 16, 2007.
Enforcement is carried out by the Office of Export
Enforcement (OEE) at BIS. OEE has a staff of approximately
164 in Washington and eight domestic field offices. OEE is
authorized to carry out investigations domestically and works
with Department of Homeland Security (DHS) to conduct
investigations overseas. OEE also conducts pre-license and
post-shipment verification along with in-country U.S. embassy
officials overseas.
The Export Enforcement Act of 2007. One of the persistent
concerns about the administration of the dual-use system is
that it operates under the emergency authority of the
International Economic Emergency Powers Act (IEEPA), the
underlying EAA having last expired in 2001. On August 3,
2007, the administration-supported Export Enforcement Act of
2007 (S. 2000) was introduced by Senator Dodd. The draft bill
would reauthorize the Export Administration Act for five
years and amend the penalty and enforcement provisions of the
Act. The proposed legislation would revise the penalty
structure and increase penalties for export control
violations. The bill would raise criminal penalties for
individuals up to $1 million and raise the term of potential
imprisonment to ten years for each violation. For firms, it
would raise penalties to the greater of $5 million or 10
times the value of the export. Under the 1979 FAA, the base
penalty was the greater of $50,000 or 5 times the value of
the export, or five years imprisonment. It would expand the
list of statutory violations that could result in a denial of
export privileges, and it extends the term of such denial
from not more than 10 years to not more than 25 years.
The enforcement provisions of the Administration proposal
would expand the authority of the Department of Commerce to
investigate potential violations of EAA overseas. It provides
for enforcement authority at other places at home and abroad
with the concurrence of the Department of Homeland Security.
The proposed draft legislation would restate the enforcement
provisions of the EAA to account for the current structure of
Customs and Border Security and the Immigration and Customs
Enforcement in the Department of Homeland Security. It would
also direct the Secretary of Commerce to publish and update
best practices guidelines for effective export control
compliance programs. It also would expand the confidentiality
provisions beyond licenses and licensing activity to include
classification requests, enforcement activities, or
information obtained or supplied concerning U.S. multilateral
commitments. The bill included new language governing the use
of funds for undercover investigations and operations and
establishes audit and reporting requirements for such
investigations. It also authorized wiretaps in enforcement of
the act.
Some in the industry community have criticized the
legislation for focusing on penalties and enforcement without
addressing business concerns such as streamlining the license
process. While the Administration favors the 5 year renewal
period of the current EAA as a period in which a new export
control system may be devised, the length of the extension
may also serve to take the pressure off such reform
efforts.
Military Export Controls
Arms Export Control Act of 1976 (AECA). The AECA provides
the statutory authority for the control of defense articles
and services. It sets out foreign and national policy
objectives for international defense cooperation and military
export controls. Section 3(a) of the Arms Export Control Act
(AECA) sets forth the general criteria for countries or
international organizations to be eligible to receive United
States defense articles and defense services provided under
the act. It also sets express conditions on the uses to which
these defense items maybe put. Section 4 of the Arms Export
Control Act states that U.S. defense articles and defense
services shall be sold to friendly countries ``solely'' for
use in ``internal security,'' for use in ``legitimate self-
defense,'' to enable the recipient to participate in
``regional or collective arrangements or measures consistent
with the Charter of the United Nations,'' to enable the
recipient to participate in ``collective measures requested
by the United Nations for the purpose of maintaining or
restoring international peace and security,'' and to enable
the foreign military forces ``in less developed countries to
construct public works and to engage in other activities
helpful to the economic and social development of such
friendly countries.'' The AECA also contains the statutory
authority for the Foreign Military Sales program, under which
the U.S. government sells U.S. defense equipment, services,
and training on a government-to-government basis.
Licensing Policy. The International Traffic in Arms
Regulations (ITAR) sets out licensing policy for exports (and
some temporary imports) of U.S. Munitions List (USML) items.
A license is required for the export of nearly all items on
the USML. Canada has a limited exemption as it is considered
part of the U.S. defense industrial base. In addition, the
United States has recently signed treaties with the United
Kingdom and Australia to exempt certain defense articles from
licensing obligations to approved end-users in those
countries. These treaties must be ratified by the Senate.
Unlike some Commerce controls, licensing requirements are
based on the nature of the article and not the end-use or
end-user of the item. The United States prohibits munitions
exports to countries either unilaterally or based on
adherence to United Nations arms embargoes. In addition, any
firm engaged in manufacturing, exporting, or brokering any
item on the USML must register with DDTC and pay a yearly
fee, currently $1,750, whether it seeks to export or not
during the year.
Congressional Requirements. A prominent feature of the AECA
is the requirement of congressional consideration of foreign
arms sales proposed by the President. This procedure includes
consideration of proposals to sell major defense equipment,
defense articles and services, or the re-transfer to other
nations of such military items. The procedure is triggered by
a formal report to Congress under Sections 36 of the Arms
Export Control Act (AECA). In general, the executive branch,
after complying with the terms of applicable section of U.S.
law, usually those contained in the Arms Export Control Act,
is free to proceed with an arms sales proposal unless
Congress passes legislation prohibiting or modifying the
proposed sale.
The traditional sequence of events for the congressional
review of an arms sale proposal has been the submission by
the Defense Department (on behalf of the President) of a
preliminary or ``informal'' classified notification of a
prospective major arms sale 20 calendar-days before the
executive branch takes further formal action. This
``informal'' notification is submitted to the Speaker of the
House (who traditionally has referred it to the House Foreign
Affairs Committee), and to the Chairman of the Senate Foreign
Relations Committee. This practice stems from a February 18,
1976, letter of the Defense Department making a nonstatutory
commitment to give Congress these preliminary classified
notifications. It has been the practice for such ``informal''
notifications to be made for arms sales cases that would have
to be formally notified to Congress under the provisions of
Section 36(b) of the Arms Export Control Act (AECA). These
``informal'' notifications always precede the submission of
the required statutory notifications, but the time period
between the submission of the ``informal'' notification and
the statutory notification is not fixed. It is determined by
the President. He has the obligation under the law to submit
the arms sale proposal to Congress, but only after he has
determined that he is prepared to proceed with any such
notifiable arms sales transaction.
Under Section 36(b) of the Arms Export Control Act,
Congress must be formally notified 30 calendar-days before
the Administration can take the final steps to conclude a
government-to-government foreign military sale of major
defense equipment valued at $14 million or more, defense
articles or services valued at $50 million or more, or design
and construction services valued at $200 million or more. In
the case of such sales to NATO member states, NATO, Japan,
Australia, or New Zealand, Congress must be formally notified
15 calendar-days before the Administration can proceed with
the sale. However, the prior notice thresholds are higher for
NATO members, Australia, Japan or New Zealand. These higher
thresholds are: $25,000,000 for the sale, enhancement or
upgrading of major defense equipment; $100,000,000 for the
sale, enhancement or upgrading of defense articles and
defense services; and $300,000,000 for the sale, enhancement
or upgrading of design and construction services, so long as
such sales to these countries do not include or involve sales
to a country outside of this group of nations.
Commercially licensed arms sales also must be formally
notified to Congress 30 calendar-days before the export
license is issued if they involve the sale of major defense
[[Page S4785]]
equipment valued at $14 million or more, or defense articles
or services valued at $50 million or more (Section 36(c)
AECA). In the case of such sales to NATO member states, NATO,
Japan, Australia, or New Zealand, Congress must be formally
notified 15 calendar-days before the Administration can
proceed with such a sale. However, the prior notice
thresholds are higher for sales to NATO members, Australia,
Japan or New Zealand specifically: $25,000,000 for the sale,
enhancement or upgrading of major defense equipment;
$100,000,000 for the sale, enhancement or upgrading of
defense articles and defense services, and $300,000,000 for
the sale, enhancement or upgrading of design and construction
services, so long as such sales to these countries do not
include or involve sales to a country outside of this group
of nations. It has not been the general practice for
the Administration to provide a 20-day ``informal''
notification to Congress of arms sales proposals that
would be made through the granting of commercial licenses.
A congressional recess or adjournment does not stop the 30
calendar-day statutory review period. It should be emphasized
that after Congress receives a statutory notification
required under Sections 36(b) or 36(c) of the Arms Export
Control Act, for example, and 30 calendar-days elapse without
Congress having blocked the sale, the executive branch is
free to proceed with the sales process. This fact does not
mean necessarily that the executive branch and the
prospective arms purchaser will sign a sales contract and
that the items will be transferred on the 31st day after the
statutory notification of the proposal has been made. It
would, however, be legal to do so at that time.
Administration. Exports of defense goods and services are
administered by the Directorate of Defense Trade Controls
(DDTC) at the Department of State. DDTC is a component of the
Bureau of Political-Military Affairs and consists of four
offices: Management, Policy, Licensing, and Compliance. In
FY2008, DDTC was funded at a level of $12.7 million and had a
staff of 78 ($6.6 million for licensing activities, 44
licensing officers). In the 12 months ending March 2008, DDTC
completed action on 83,886 export license applications, and
its FY2009 budget request reported that license application
volumes have increased by 8% a year. DDTC's FY2009 budget
request, however, did not ask for additional staffing and its
budget request called for an increase of $0.4 million to
$13.1 million ($6.9 million for licensing activities). On
March 24, 2008, 19 Members of Congress wrote to the
Chairwoman and Ranking Member of the House State and Foreign
Operations Appropriations Subcommittee to request a funding
level of $26 million, including $8 million collected yearly
from registration fees. Senator Biden, in his Foreign
Relations Views and Estimates letter to the Senate Budget
Committee also described DDTC as ``seriously understaffed''
and suggested ``a doubling of that figure ($6.9 million for
licensing) is warranted.
Critics of the defense trade system have long decried the
delays and backlogs in processing license applications at
DDTC. The new National Security Presidential Directive (NSPD-
56), signed by President Bush on January 22, 2008, directed
that the review and adjudication of defense trade licenses
submitted under ITAR are to be completed within 60 days,
except where certain national security exemptions apply.
Previously, except for the Congressional notification
procedures discussed above, DDTC had no defined time-line for
the application process. DDTC's backlog of open cases, which
had reached 10,000 by the end of 2006, has been reduced to
3,458 by March 2008. During this period, average processing
time of munitions license applications have also trended
downward from 33 days to 15 days. However, GAO reported in
November 2007 that DDTC was using ``extraordinary
measures--such as extending work hours, canceling staff
training, meeting, and industry outreach, and pulling
available staff from other duties in order to process
cases'' to reduce the license backlog, measures that it
described as unsustainable.
Enforcement and Penalties. The AECA provides for criminal
penalties of $1 million or ten years for each violation, or
both. AECA also authorizes civil penalties of up to $500,000
and debarment from future exports. DDTC has a small
enforcement staff (18 in the Office of Defense Trade
Compliance) and works with the Defense Security Service and
the Customs and Border Protection (CBP) and Immigration and
Customs Enforcement (ICE) units at the Department of Homeland
Security (DHS). DDTC assists the DHS and the Department of
Justice in pursuing criminal investigations and prosecutions.
DDTC also coordinates the Blue Lantern end-use monitoring
program, in which U.S. embassy officials in-country conduct
pre-license checks and post-shipment verifications. In
FY2006, DDTC completed 489 end-use cases, 94 (19%) of which
were determined to be unfavorable.
Nuclear
A subset of the abovementioned dual-use and military
controls are controls on nuclear items and technology.
Controls on nuclear goods and technology are derived from the
Atomic Energy Act as well as from the EAA and the AECA.
Controls on nuclear exports are divided between several
agencies based on the product or service being exported. The
Nuclear Regulatory Commission regulates exports of nuclear
facilities and material, including core reactors. The NRC
licensing policy and control list is located at 10 C.F.R.
110. BIS licenses ``outside the core'' civilian power plant
equipment and maintains the Nuclear Referral List as part of
the CCL. The Department of Energy controls the export of
nuclear technology. DDTC exercises licensing authority over
nuclear items in defense articles under the ITAR.
Defense Technology Security Administration (DTSA)
DTSA is located in the Department of Defense, Office of the
Under Secretary of Defense for Policy under the Assistant
Secretary of Defense for Global Security Affairs. DTSA
coordinates the technical and national security review of
direct commercial sales export licenses and commodity
jurisdiction requests received from the Departments of
Commerce and State. It develops the recommendation of the DOD
on these referred export licenses or commodity jurisdictions
based on input provided by the various DOD departments and
agencies and represents DOD in the interagency dispute
resolution process. In calendar year 2007, DTSA completed
41,689 license referrals. Not all licenses from DDTC or BIS
are referred to DTSA; memorandums of understanding govern the
types of licenses referred from each agency. DTSA coordinates
the DOD position with regard to proposed changes to the
International Traffic in Arms Regulations (ITAR) and the
Export Administration Regulations (EAR). It also represents
the DOD in interagency fora responsible for compliance with
multinational export control regimes. For FY2008, DTSA had a
staff of 187 civilian and active duty military employees and
received funding of $23.3 million.
APPENDIX 1: BASIC EXPORT CONTROL CHARACTERISTICS
----------------------------------------------------------------------------------------------------------------
Characteristic Dual-Use Munitions Nuclear
----------------------------------------------------------------------------------------------------------------
Legislative Authority................ Export Administration Arms Export Control Act Atomic Energy Act of
Act (EAA) of 1979 of 1976 (AECA). 1954.
(expired);
International
Emergency Economic
Powers Act of 1977
(IEEPA).
Agency of Jurisdiction............... Bureau of Industry and Directorate of Defense Nuclear Regulatory
Security (BIS) Trade Controls (DDTC) Commission (NRC)
(Commerce). (State). (facilities and
material); Department
of Energy (DOE)
(technology); BIS
(`outside the core'
civilian power plant
equipment); DDTC
(nuclear items in
defense articles).
Implementing Regulations............. Export Administration International Traffic 10 C.F.R. 110--Export
Regulations (EAR). in arms Regulations and Import of Nuclear
(ITAR). Material and Equipment
(NRC); 10 C.F.R. 810--
Assistance to Foreign
Atomic energy
Activities (DOE).
Control List......................... Commerce Control List Munitions List (USML).. List of Nuclear
(CCL). Facilities and
Equipment; List of
Nuclear Materials
(NRC); Nuclear
Referral List (CCL);
USML; Activities
Requiring Specific
Authorization (DOE).
Relation to Multilateral Controls.... Wassenaar Arrangement Wassennaar Arrangement Nuclear Suppliers'
(Dual-Use); Missile (munitions); MTCR. Group; International
Technology Control Atomic Energy Agency.
Regime (MTCR);
Australia Group (CBW);
Nuclear Suppliers'
Group.
Licensing Policy..................... Based on item, country, Most Munitions; License General/Specific
or both. Anti- items require Licenses (NRC);
terrorism controls licenses; 21 General/Specific
proscribe exports to 5 proscribed countries. Authorizations (DOE).
countries for nearly
all CCL listings.
Licensing Application Timeline....... initial referral within 60 days with national No timeframe for
9 days; agency must security exceptions; license applications.
approve/deny within 30 Congressional
days; 90 appeal notification period
process. (See Appendix for significant
2). military equipment.
[[Page S4786]]
Penalties............................ Criminal: $1 million or Criminal: $1 million/10 Criminal: Individual--
20 years; Civil: years prison; Civil: $250,000/12 years to
$250,000/Denial of $500,000/forfeiture of life; Firm--$500,000
export privileges. goods, conveyance; (For NRC and DOE);
(IEEPA). Denial of Export Civil: $100,000 per
Privileges for either. violation (For NRC).
----------------------------------------------------------------------------------------------------------------
Congressional Research Service;
Washington, DC, April 21, 2008.
Memorandum
Re: United Arab Emirates: Political Background and Export
Control Issues.
To: Senate Homeland Security and Government Affairs
Committee; Subcommittee on Oversight of Government
Management; the Federal Workforce, and the District of
Columbia.
From: Kenneth Katzman; Specialist in Middle Eastern Affairs;
Ian F. Fergusson; Specialist in International Trade and
Finance Foreign Affairs, Defense, and Trade Division.
This memorandum responds to your request for background on
the United Arab Emirates and concerns about that country's
export control law and practices. If you have any requests
concerning this material, please contact Kenneth Katzman (7-
7612) or Ian Fergusson (7-4997).
Political and Economic Background
The UAE is a federation of seven emirates (principalities):
Abu Dhabi, the oil-rich capital of the federation; Dubai, its
free-trading commercial hub; and the five smaller and less
wealthy emirates of Sharjah; Ajman; Fujayrah; Umm al-Qawayn;
and Ras al-Khaymah. The UAE federation is led by the ruler of
Abu Dhabi, Khalifa bin Zayid al-Nuhayyan, now about 60 years
old. The ruler of Dubai traditionally serves concurrently as
Vice President and Prime Minister of the UAE; that position
has been held by Mohammad bin Rashid Al Maktum, architect of
Dubai's modernization drive, since the death of his elder
brother Maktum bin Rashid Al Maktum on January 5, 2006.
In part because of its small size--its population is about
4.4 million, of which only about 900,000 are citizens--the
UAE is one of the wealthiest of the Gulf states, with a gross
domestic product (GDP) per capita of about $55,000 per year
in terms of purchasing power parity. Islamist movements in
UAE, including those linked to the Muslim Brotherhood, are
generally non-violent and perform social and relief work.
However, the UAE is surrounded by several powers that dwarf
it in size and strategic capabilities, including Iran, Iraq,
and Saudi Arabia, which has a close relationship with the UAE
but views itself as the leader of the Gulf monarchies.
The UAE has long lagged behind the other Persian Gulf
states in political reform, but the federation, and several
individual emirates, have begun to move forward. The most
significant reform, to date, took place in December 2006,
when limited elections were held for half of the 40-seat
Federal National Council (FNC); the other 20 seats continue
to be appointed. Previously, all 40 members of the FNC were
appointed by all seven emirates, weighted in favor of Abu
Dhabi and Dubai (eight seats each). UAE citizens are able to
express their concerns directly to the leadership through
traditional consultative mechanisms, such as the open majlis
(council) held by many UAE leaders.
The UAE's social problems are likely a result of its open
economy, particularly in Dubai. The Trafficking in Persons
report for 2007 again placed the UAE on ``Tier 2/Watch List''
(up from Tier 3 in 2005) because it does not comply with the
minimum standards for the elimination of trafficking but is
making significant efforts to do so. The UAE is considered a
``destination country'' for women trafficked from Asia and
the former Soviet Union.
Defense Relations With the United States and Concerns About
Iran. Following the 1991 Gulf war to oust Iraqi forces from
Kuwait, the UAE, whose armed forces number about 61,000,
determined that it wanted a closer relationship with the
United States, in part to deter and to counter Iranian naval
power. UAE fears escalated in April 1992, when Iran asserted
complete control of the largely uninhabited Persian Gulf
island of Abu Musa, which it and the UAE shared under a 1971
bilateral agreement. (In 1971, Iran, then ruled by the U.S.-
backed Shah, seized two other islands, Greater and Lesser
Tunb, from the emirate of Ras al-Khaymah, as well as part of
Abu Musa from the emirate of Sharjah.) The UAE wants to refer
the dispute to the International Court of Justice (ICJ), but
Iran insists on resolving the issue bilaterally. The United
States is concerned about Iran's military control over the
islands and supports UAE proposals, but the United States
takes no position on sovereignty of the islands. The UAE,
particularly Abu Dhabi, has long feared that the large
Iranian-origin community in Dubai emirate (est. 400,000
persons) could pose a ``fifth column'' threat to UAE
stability. Illustrating the UAE's attempts to avoid
antagonizing Iran, in May 2007, Iranian President Mahmoud
Ahmadinejad was permitted to hold a rally for Iranian
expatriates in Dubai when he made the first high level visit
to UAE since UAE independence in 1971.
The framework for U.S.-UAE defense cooperation is a July
25, 1994, bilateral defense pact, the text of which is
classified, including a ``status of forces agreement''
(SOFA). Under the pact, during the years of U.S.
``containment'' of Iraq (1991-2003), the UAE allowed U.S.
equipment pre-positioning and U.S. warship visits at its
large Jebel Ali port, capable of handling aircraft carriers,
and it permitted the upgrading of airfields in the UAE that
were used for U.S. combat support flights, during Operation
Iraqi Freedom (OIF). About 1,800 U.S. forces, mostly Air
Force, are in UAE; they use Al Dhafra air base (mostly KC-10
refueling) and naval facilities at Fujairah to support U.S.
operations in Iraq and Afghanistan.
The UAE, a member of the World Trade Organization (WTO),
has developed a free market economy. On November 15, 2004,
the Administration notified Congress it had begun negotiating
a free trade agreement (FTA) with the UAE. Several rounds of
talks were held prior to the June 2007 expiration of
Administration ``trade promotion authority,'' but progress
had been halting, mainly because UAE may feel it does not
need the FTA enough to warrant making major labor and
other reforms. Despite diversification, oil exports still
account for one-third of the UAE's federal budget. Abu
Dhabi has 80% of the federation's proven oil reserves of
about 100 billion barrels, enough for over 100 years of
exports at the current production rate of 2.2 million
barrels per day (mbd). Of that amount, about 2.1 mbd are
exported, but negligible amounts go to the United States.
The UAE does not have ample supplies of natural gas, and
it has entered into a deal with neighboring gas exporter
Qatar to construct pipeline that will bring Qatari gas to
UAE (Dolphin project). UAE is also taking a leading role
among the Gulf states in pressing consideration of
alternative energies, including nuclear energy, to
maintain Gulf energy dominance.
Export Control Issues
Cooperation Against Terrorism. The relatively open society
of the UAE--along with UAE policy to engage rather than
confront its powerful neighbors--has also caused differences
with the United States on the presence of terrorists and
their financial networks. However, the UAE has been
consistently credited by U.S. officials with attempting to
rectify problems identified by the United States.
The UAE was one of only three countries (Pakistan and Saudi
Arabia were the others) to have recognized the Taliban during
1996-2001 as the government of Afghanistan. During Taliban
rule, the UAE allowed Ariana Afghan airlines to operate
direct service, and Al Qaeda activists reportedly spent time
there. Two of the September 11 hijackers were UAE nationals,
and they reportedly used UAE-based financial networks in the
plot. Since then, the UAE has been credited in U.S. reports
(State Department ``Country Reports on Terrorism: 2006,
released April 30, 2007'') and statements with: assisting in
the 2002 arrest of senior Al Qaeda operative in the Gulf, Abd
al-Rahim al-Nashiri; denouncing terror attacks; improving
border security; prescribing guidance for Friday prayer
leaders; investigating suspect financial transactions; and
strengthening its bureaucracy and legal framework to combat
terrorism. In December 2004, the United States and Dubai
signed a Container Security Initiative Statement of
Principles, aimed at screening U.S.-bound containerized cargo
transiting Dubai ports. Under the agreement, U.S. Customs
officers are co-located with the Dubai Customs Intelligence
Unit at Port Rashid in Dubai. On a ``spot check'' basis,
containers are screened at that and other UAE ports for
weaponry, explosives, and other illicit cargo.
The UAE has long been under scrutiny as a transhipment
point for exports to Iran and other proliferators. In
connection with revelations of illicit sales of nuclear
technology to Iran, Libya, and North Korea by Pakistan's
nuclear scientist A.Q. Khan, Dubai was named as a key
transfer point for Khan's shipments of nuclear components.
Two Dubai-based companies were apparently involved in trans-
shipping components: SMB Computers and Gulf Technical
Industries. On April 7, 2004, the Administration sanctioned a
UAE firm, Elmstone Service and Trading (FZE), for allegedly
selling weapons of mass destruction- related technology to
Iran, under the Iran-Syria Non-Proliferation Act (P.L. 106-
178). More recently, in June 2006, the Bureau of Industry and
Security (BIS) released a general order imposing a license
requirement on Mayrow General Trading Company and related
enterprises in the UAE. This was done after Mayrow was
implicated in the transhipment of electronic components
and devices capable of being used to construct improvised
explosive devices (IED) used in Iraq and Afghanistan.
Current Controls. The UAE is not subject to any blanket
prohibitions regarding dual- use Commerce exports. In
general, the UAE faces many of the same license requirements
[[Page S4787]]
as other non-NATO countries. In the Export Administration
Regulations (15 CFR 730 et seq.), the UAE is designated on
Country Group D and thus is not eligible for certain license
exceptions for items controlled for chemical biological and
missile technology reasons. Reexports of U.S. origin goods
from one foreign country to another subject to EAR are also
controlled, and may require the reexporter regardless to
nationality to obtain a license for reexport from BIS.
The Treasury Department's Office of Foreign Assets Control
maintains a comprehensive embargo on the export, re-export,
sale or supply of any good, service or technology to Iran by
persons of U.S. origin, including to persons in third
countries with the knowledge that such goods are intended
specifically for the supply, transhipment or re-exportation
to Iran (Iranian Transaction Regulations, 31 CFR 560.204).
Re-exportation of goods, technology and services by non-U.S.
persons are also prohibited if undertaken with the knowledge
or reason to know that the re-exportation is intended
specifically for Iran. (31 CFR 560.205). In addition, BIS
also maintains controls on exports and reexports for items on
the Commerce Control List (EAR, 15 CFR 746.7).
The lack of an effective export control system in the UAE
and the use of the emirates' ports as transhipment centers
has been a concern to U.S. policymakers. To that end, BIS
released an advanced notice of proposed rule-making on
February 26, 2007 that would have created a new control
designation: ``Country Group C: Destinations of Diversion
Control.'' This designation would have established license
requirements on exports and re-exports to countries that
represent a diversion or transhipment risk for goods subject
to the Export Administration Regulations. According to BIS,
the Country C designation was designed ``to strengthen the
trade compliance and export control system of countries that
are transhipment hubs.'' Designation on the Country Group C
list could lead to tightened licensing requirements for
designees. Although no countries were mentioned in the
notice, it was widely considered to be directed at the United
Arab Emirates.
Perhaps as a response to the possibility of becoming a
`Country C' designee, the UAE Federal Council passed the
emirate's first ever export control statute in March 2007.
That law, also created a control body known as the National
Commission for Commodities Subject to Import, Export, and Re-
export Controls and that law was signed on August 31, 2007 by
Emirates President H.H. Sheikh Khalifa bin Zayed Al Nahyan.
Reportedly, the law's structure and control lists were
modeled after the export control regime of Singapore,
another prominent transhipment hub. It remains unclear,
however, the extent to which the law is being enforced or
whether resources are being devoted to preventing the
diversion or illegal transhipment of controlled U.S. goods
and technologies.
The United States has one export control officer (ECO) on
the ground in the UAE to investigate violations of U.S. dual-
use export control laws. This officer may be augmented by
U.S. Foreign Commercial Officers in conducting end-use check
and post-shipment verifications. A recent GAO report
mentioned a ``high-rate of unfavorable end-use checks for
U.S. items exported to the UAE,'' but the report did not
elaborate further.
The United States also has engaged in technical cooperation
to assist the UAE in developing its export control regime.
Officials from BIS and other agencies reportedly traveled to
the UAE in June 2007 to discuss the proposed statute. In
addition, the Department of State has also provided training
through its Export Control and RelatedBorder Security (EXBS)
program. This program provides participating countries with
licensing and legal regulatory workshops, detection
equipment, on-site program and training advisers, and
automated licensing programs. Since FY2001, UAE has received
between $172-$350 thousand annually in this assistance. For
FY2009, State has requested $200 thousand for the UAE under
this program.
RECENT U.S. AID TO UAE
----------------------------------------------------------------------------------------------------------------
FY2007 and FY2006 FY2008 FY2009
(Combined) FY2007 (est.) (req)
----------------------------------------------------------------------------------------------------------------
NADR (Non-Proliferation, Anti- $1.094 million......... $1.581 million......... $300,000 $925,000
Terrorism, De-Mining, and Related)--
Anti-Terrorism Programs (ATA).
NADR--Counter-Terrorism Financing... $300,000 (FY2006 only). $580,000............... ........... $725,000
NADR--Export Control and Related $250,000............... $172,000............... $300,000 $200,000
Border Security Assistance.
International Military Education and ....................... ....................... $14,000 $15,000
Training (IMET).
International Narcotics and Law ....................... ....................... $300,000 ...........
Enforcement (INCLE).
----------------------------------------------------------------------------------------------------------------
Source: Department of State, FY2009 Budget Justification.
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