Export Control Reform ‘Whiplash’

Unless you are in the business of manufacturing or shipping defense articles or high-tech products, a majority of Americans have no idea about export controls.  Yet when it is explained to folks, in plain English, what these export control rules and regulations are intended to do, people (outside the beltway) are supportive.  The key to all this though is “plain English” free of Beltway wonk speech, acronyms, and catchy code phrases.  Every now and then we even get a good Hollywood movie to reinforce the point of what can happen, theoretically, when export control laws are ignored or are non-existent.

A friend who I have advised on these matters for his business was perplexed when he first learned that the line of work he was in would require licensing from the U.S. government.  He is a movie buff (and happens to be in the business), I used the recently released Ironman II to illustrate why these rules exist and what could happened when controlled or high-tech items fall in to the wrong hands and the government has no way to track down who is buying what.

In Ironman II the villain, Whiplash (pictured), is a Russian physicist who uses blueprints his father stole from his former employer, Stark Industries decades before.  Stark Industries is a U.S. company that develops and manufactures many interesting gadgets, including the Ironman suit. Armed with the blueprints his father stole, Ivan Vanko, played by Mickey Rourke, manufactures an energy suit that includes two whips mounted on the user’s arms.  Whiplash uses the energy suit to cause all sort of mischief (and this is all I will pen about the movie in case you have not seen it). My client, amused, still does not like the rules – especially the licensing fees – but he better understands why  the government needs to control the items that he uses in his business.

Despite the controls in place on dual-use items and defense articles, more than 95% of U.S. goods and services are NOT subject to export control laws.  Yet the U.S. export control regime is the most robust in the world.  As it should be, we are and will remain the lead technology innovator for decades to come.  Foreign students and companies want to come here, not other countries, because we make the cooler toys, the leading edge technology for civilian and defense markets. It is America, the rules are different here.

Conceived during the Cold War, the export control system has evolved and been modernized at various points since its creation.  But as with any regulatory scheme, it is in need of tune-up as technology and geo-strategic challenges have evolved.  The process started somewhat during the Bush Administration, but has really taken off with the Obama Administration.  The Obama national security team should be commended for tackling this policy porcupine, but this past week I attended a meeting that included a briefing with Obama Administration officials that left with a bad case of mental whiplash.

Without much, if any, substantive input from the U.S. Congress (Congressional leaders have been noticeably quiet), during the course of the past six weeks or so the Obama Administration has undertaken what it calls a “broad-based interagency review” that meets daily to “reform” the export control system.  Numerous senior officials from various agencies have made speeches about reform that have ranged from informative to almost shrill.  In the latter category consider this non-sequitir used by senior officials:

our current [export controls] system itself is a national security risk in the sense that it’s too complicated, has too many redundancies, and tries to protect way too much.

Secretary of Defense Bill Gates delivered a speech dubbed, beltway talk, the four singularities:  a single control list, a single licensing agency, a single enforcement agency, and a unified information technology structure.  Very short on specifics and rich with general ideas, it lays out a framework that has been broken down into three phases.   In theory, these changes will make the current system less complicated, less redundant.  But will it go the other way and protecting way too little, removing the national security risk that the current system is supposedly creating?

Governments are not profit centers or free market entities.  No matter the subject area, there will always be a great deal of inefficiency in federal regulatory systems.  With regards to export controls, the regulatory language could use some updating and, possibly, definitions harmonized across agencies.  Information sharing across agencies is critical and long overdue.  For example, the national security agencies should all know, in real time, what is controlled, where it is going, and who has been licensed to have it.  An appeals process for product classification and violations that is more transparent should also be developed.

U.S. export control laws are not a national security risk, but tinkering with them the way folks have been doing the past few weeks seems to be. While the current export control regime could use updating, one should always be weary of the federal government bearing gifts.  When the giver is gone who will be left to deal with the system?  The very people and companies that need to comply with it. It is because of these and many other reasons that this process calls for a piecemeal approach, not pan reform.

Most of my clients may not like the current regulations, but at least they know what they have to do in order to comply with them.  When faced with redundancies and challenges, well, that is what they pay the lawyers to do, resolve the problem.  Rushing about in a few weeks to change a system that works but could use some improvement is a recipe for disaster.

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