June 30, 1987

June 30, 1987 | Backgrounder on Trade, Economic Freedom

How Export Controls Defend the National Interest

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I I I 589 June 30,1987 I I HOW EXPORT CONTROLS DEFEND THE NATIONAL INTEREST I INTRODUCTION Recent revelations about the transfer of im ortant militarily useful technologies dram America's allies to the Soviet Union have high\{ hted the importance. of t$e Umted States amendments to the Export Adrmmstration Act (EM) which re lat es technology transfer U.S. security. The conventional military balance m Euro e and elsewhere, for exam le superiority of Western weapons systems a major factor in preservin the si 'cant technological advantage of the defense systems Some members of Cong r ess, along with a small part of the business community, seem determined to loosen or eliminate many current controls on exports of militanly sensitive technology sli pa e to the Soviet bloc, such as the newly discovered incidents involving Ja an's #Shiga n fachine nee to be stren henedl If the export control s stem and the rmlita balance which it supports are un erplined, the U.S. either woul have to increase. de ense spendin dramatically to maintain the strategic and conventional rmlitary balance or accept oviet bloc military predominance export control system. As the Congress-this wee f consider! trade legslaoon, includ

g it should keep in mind that tight restrictions on technoiogy trans P er are crucial to protecting has been maintained by offsetting Wars aw Pact numerica P advantage with the techno ogical of the US. and its allies P oday, owever, the U.S. export control system is under ysault.

Co oration and Norwa 's Kongsberg Vapenfabrikk, in CF icate that controls actually may f B ip National security e xport controls first established at the end-of World.tWar JI, have been Undermining the Military Balance. In fact, recent technolo I I 5 To assure adequate technology transfer controls, the Congress should I 1) Make clear that the Defense Department must h ave a strong role in the export I control process to counter the Commerce Department, which naturally seeks to emphasize U.S. exports rather than U.S. security I I I i i 2) Give the President clear authority to restrict and regulate financial transfers, s u ch as 3) Give the President bank loans and other credits, to the Soviet bloc; and allied cooperation in export control the authonty to bar e orts to the U.S. efforts. For example, from overseas com anies that have to companies in other nations that have v i olated these same restrictions. Finally, the President should be urged to pressure U.S. allies into givin their own defense ministries a much more prominent role in the export control process. drrently, almost all U.S. allies allow the trade ministries to dominate this process CoCom export contro T s. The President also sho 3 d be able to block or revoke U.S. government procurement contracts Few issues are as myth filled as is that of-expoc controls. It is essential for U.S. national security that policyma k ers take a dispassionate look at export controlsand.go,xo I beyond the acce ted wisdom. Such a review yill reveal that current export controls actually need to e strengthened, not diluted DETERIORATION OF CONTROLS The Decontrol Campaign Prior to World War 11, U.S. export controls were instituted on an ad hoc basis against specified nations. As the Soviet threat emerged after World War 11, the U.S. took multilateral and unilateral steps to control exports for security reasons: multilaterally, the U.S. in 19 49 joined with Western Eurogean nations to coordinate export controls through the Coordinatin Committee (CoCom unilateral1 the Export Control Act of 1949 gave the President su stantial powers to restrict or prohikt trade withacommunist bloc nations.

During the 1970s, influenced by U.S.-Soviet detente, the statutes and their administration were relaxed to encourage greater trade with the Soviet bloc. Spurring these changes were the desire to further detente and the pressures from various interests to romote the export of technolo cally sophisticated U.S. goods, In e ykon export controls tKivate Ford, and rter Administrations, meanwhi 4 e, low pnority was given to nabonal security 1. See: Juliana Germ Pilon and W. Bruce Weinrod, Staunching the Technology Flow to Moscow, Heritage Foundation Backtxounder No. 292, September 23,1983 2. CoCom is the Coordinating Committee, an organization through which the NATO countries and Japan coordinate national security export controls 2equipment and technology I' ermitted th e Soviets to systematically build a modem mcroelectroniq industry w K. ich will be the critical basis for enhancing the sophistication of future Soviet mlitary systems for decades This sensitive transfer was suffiaent to "meet ercent of all their mcroelect r onic needs." A more dramatic example YYrposes, o owet use Or of 100 percent of the SoFets' high quality migoelectronic needs for milit bestern technoloB, of course, was the trucks which carried the invading Soviet divisions into Afghanistan m 1979; they w ere manufactured in a plant designed and equipped by American and West European firms.

In September 1985, the CIA updated its re ort, statin that since 1982 it has become even more evident that the magmtude of the le oviets' col P ection effort and their ability to assimilate collected equipment and technology are far greater than was previ o usly believed I Cornpensatin for Soviet Gains The increases in U.S. defense expenditures this 'decade were required in ar e part to corn ensate for those Soviet advances made ossible through the application of destern techno ogy. A 1985 Pentagon re ort es t imatest is cost to Western defense budgets to be between $20 billion and $50 illion per year. The cost of offsettin for exam le Soviet gains in cruise missile defenses--im rovements made g30 billion over time. The U.S in essence, is paying twice: first to develop the technology and second to offset Soviet bloc use of it R t P ossible Q y acquire$ Festern technology--was estimated at $2 bil F ion for the first year and The 1985 Amendments Between 1983 and 1985, Congress conducted a tortuous review of the Ex p ort Administration Act, the law imposing controls on exports. This review culmnated in a 1985 law further weakening controls and limiting presidential authority to enforce controls. Ma or categories of national security export controls were eliminated ent i rely: licenses state-of-the-art goods and technology could be shipped to any CoCom-country without governmental review. Statutory time limits for reviewing export license applications were cut by a third overall; for exports to CoCom countries the exporte r acould assume license a proval if he failed to hear from the Commerce Department wthin 30 days, re ardless of encumbered by elaborate procedures cou i d no longer be required for certain spare parts, and sophisticated though not e complexity of the applic a tion or the so histication of the equipment. In ad 8 ition, the President's authority to employ foreign PO F icy controls was sharply curtailed and nation's a ility to I Closin Loopholes created of the elevates the enforcement resources; law I 3 Soviet Ac q uisition of Western Technology," April 1982, reprinted in East-West Trade and Technolow Transfer Hearing before the Subcommittee on International Finance and Monetary Policy of the Committee on'Banking, Housing, and Urban Affairs, United States Senate, 97 t h Congress, Second Session, Washington, D.C 1982, pp. 23, 24,31 4. Soviet Acauisition of Militarilv Sidicant Western Technoloev: An UDdate September 1985, p. 1 5. Oftice of the Undersecretary of Defense for Policy, Assessinv the Effect of Technolow Transf e r on U.S./Western Securitv (Washington, D.C.: 1985 pp. E-5, E-6, and 4-8 6. This provision of the 1985 amendments has yet to be implemented. While the provision was originally mandated for implementation by October 1,1986, the Commerce Department obtained a one-year delay and has sought further delay or elimination of the position entirely I 3-enforcement background, and the intergovernmental man ements to ensure effective used to circumvent previous controls. Example: The Customs Service now has explicit authority to prohibit sales of sensitive items to the embassies of Soviet bloc countries.

Some executive branch actions, moreover, have served to strengthen the export control system. Bud etary resources though still modest, have been increased significant 1 for the Service, and each of these agencies reorganized their e ort control operations to enhance control activities, the Department of Defense created the Technolo Security Agency and u graded its rewew process from a mere technical exercise to one t B y at includes evaluation aggressive enforcement program, Operation Exodus tracing and interdiction of EAA violations. Various loopho 9 es were closed that had been export contro 4 efforts of the Commerce and Defense Departments and the U.S. dstoms effectiv e ness: the Commerce Department upgraded an 7- increased the visibility of its export o F security policy implications of technology transfers, and the Customs Service initiated its the U.S. an 3 its allies. The 1985 law and concurrent administrative action s ,o I! y hav,e;.4 I Soviet ac uisition of sensitive Western goods and technology i; a continuin danger to begun redressing the deterioration of agencies estimate that the technology transfer operations does not include the activities to purchase Western t e chnology ort control system. U.S. intelligence least 1.4 billion on clandestme and Western controls is estimate European allies or their open efforts ISSUES BEFORE THE 100th CONGRESS Concerns about the U.S. e ort control system are particular1 relevant no w . As, a part B of its consideration of trade re 'fp orm legislation Con ress will be ebating proposed changes Rave been offered are designed not only to undermine the national securi exception would give the President authority to control P inancial i wou P d make several adjustments to the qrrent e ort control system. t would provide distribution licenses, woul ti be authorized for exports to the People's Republic of China considered, inc 9 uding 4 in the Export Administration Act (EAA) which regu ates U. S . technology transfer In the 100th Congress several bills. have been introduced to amend-the Export Administration Act. With one exception, each of these bills res onds to the trade romotion concerns that guided the detente era amendments. tome of the pro v isions that adopted in 1985 but to take trade relaxation beyond pro osalq countries and countries identified by the Secretary of State as supporting terrorism S ecific Deadlines. The Administration has its own bill (H.R. 1155 S. 654) which specific deadli n es for reviewing the question of w ether a controlled item is already available to the Sovlets from an uncontrolled source and should therefore no longer be controlled. It would begin to apply this concept of foreign availability to non-Sowet lbloc countr i es, so-called West-West trade, where an expedited licensing procedure would be applied. A liFense allowin multiple exports without individual license review, so-calied During con resHiona1 debate, a number of issues raised by this legislation will be T 7. Soviet Acuuisition of Militarilv Sienificant Western Technolow: An Uudate OD. cit p 6. In comparison, the Department of Commerce was appropriated a record high $35.8 million in 1987 for export control activities 4 I Reexport Controls Current law not only a uthorizes controls on exports from the U.S. or by ersons subject to U.S. law, but also controls the resale or re-export of controlled items by t R eir recipients The U.S. wews a re-export in the same way as it wews an initial export screening a plications with respect to destination, proposed use, the possibility of diversion to the &viet bloc, and so forth re-export controls are a violation of their soverei ty. They also contend that since -1 re-export controls is very low, the U.S. gains very little from such controls Terrible Fact To be sure, Washin ton would not have to control the re-export of U.S. items from its allies if the allies actu aB y were effectively controlling the re-exports. The problem is that they are not. U.S. allies' efforts have impro v ed, but they remainuneven No one seriously claims that CoCom control efforts measure up to those of the U.S. The terrible fact remains that U.S. securi is undermined just as much if the Soviets obtain I Opponents of re-export controls point to complaints by other nations that U:S.

CoCom countries romise to maintgn corn arab Y e export controls, U.S. re:export controls are superfluous. finally, opponents insist t K at because actual compliance wth U.S technology directly from the U.S. or z om an Amencan all y that re-export controls probably need stren hening. firms in CoCom countries have rovide f Moscow bonanza ever Ip oshiba Machine its most valuable Western technolo and Kongsberg Vapenfabrikk of r$y orway are believed to have sold UGon technology that fi ll reduce sig4ficFtly the noise of Soviet Since propeller noise is one of the pnncipal methods of submarme will erode dan erously the ability of U.S. and NATO forces to I H movements o Soviet nuclear mssile and attack submarines.

The Oslo newspa er from 10 0 nautical mile to 5 of Defense Richard Trade Subcommittee the of American military syste ms will have to hundreds of millions immediately and over those two companies in CoCom countries range in which the #est expense in the and the benefit of Weakness o f A!lied Efforts This example highlight! the weaknesses in the control efforts of U.S. allies. To be sure, the Japanese mantam a control list similar to Washington's. The problem is that Tokyo is reluctant to impose any felony enalties on violators of expo r t controls. And a company Toshiba's size easily can absor f the ciql fines the Ja anese government might impose for export control violations. In the Toshi f a/Kongsberg case, moreover,.Tokyo dragged its feet for two years before fol1;Owing up on the info rmabon that illegal shipments were taking place.

Without U.S. controls on re-exports of U.S. iteq

om CoCom countries, and the U.S. enalties that violation can bring, man more sensitive items would find their way into the Eoviet bloc. While the enforcemen t e H orts of CoCom countries have improved in the last 8. Halvor Elvik Kongsberg Had License Oslo Arbeiderbladet March 24,1987, p. 6 5five years, they clear1 have not done so enough for the U.S. to rely on CoCom countries to defend U.S. nation aF interes t s Role of the Defense Department The Export Administration Act provides an essential role for the Department of Defense in the national securi export control process. This includes participation in formulatin the list of items to e controlled, formulating control policy and regulations applicabons for export licenses I a I asse!sing t I! e national security impact of proposed export control poliaes, and reviewing 9 of many products. This, 7l t ey say, in turn reduces U.S. globa competitiveness.

De artment lacks t 7i e resources pFd Rerspectiyes to carry out the national security purposes of 91 e Act. The Pentagon's participation thus is absolutely essential. In a recent report, an observes that it was the De P ense Department's "determined efforts to reinv i gorate the level of awareness rn the Umted sg tates and m other CoCom countries Opponents of Pentagon inhibits legitimate trade an extra layer of bureaucra in the control process are concerned that this to weaken its role. They argue that it adds :an proc e ss of obtainin approval for the sale overseas I I Essential Penta on Role. What this argument ignores is that the Commerce industry and private sector panel under the auspices of the National Academy of Saences, while hostile to Defense De artment partici p ation in the national security control process national security export control re ime [thatJ have been useful in ra.ish. the general Size of the Control List Under the EAA, the Commerce Department maintains a list of oods and technology which would make a significant contribution to the military potenti 2 of an other country or combinatio9pf countries which would prove detrimental to the nationdsecurity of the United States This Control List corresponds to the lists of controlled items maintained by all o f the members of CoCom I The list contains hundreds of items. Some e that the list is too long and that of export licensing on American exporters it controls items re Critics also assert enforcement of the remaining do not need to be controlled.

The length of the Control List, however is irrelevant. The question should be whether the list, whatever its length contains those items that will enhance the military capabilities of America's adversaries. hose calling for a reduction of the Control List have not: produced a list of specific items to be removed.

There are various legislative proposals to reduce the control list. To cut the list arbitrarily, however, would allow U.S. produqs and. technology. to be exported to the( Soviet Umon and its allies that will bolster their mlitary potential.

I 9. National Academy of Sciences, Balancine the National Interest: US. National Security Export Co ntrols and Global Economic ComDetition (Executive Summary Washington, D.C 1987 pp. u),

27. The panel was made up exclus ively of individuals from industries likely to gain from reduced export controls, university administrators, and officials from previous Administrations either hostile to the current Admiitration and/or who presided over the 10. The Export Administration A ct of 1979, Section 3(2)(A deterioration of the export control system 6Emergency Trade Controls In addition to the Export Administration Act, the President retains authori to control e orts in emergency situations under the International Emer ency Economi c '16 owers Act security reasons. Jim Carter relied on this authori to freeze Irman assets during the secunty and forei policy export controls when congressional impasse revented a timely renewal of the E EL The recent Libyan controls are a good example o F when controls served both national security and foreign policy purposes used this authority to get around EAA restrictions on residential ex ort control. They foreign policy controls, such as those placed on Libya last year, cannot void existing contract s The President indeed may have relied u on his IEEPA authority to avoid the EAA SEPA This includes authority to control exports for both B oreign policy and national hostage crisis. Ronald w eagan used this authority in B 984 and 1985 to maintain national claim, for example, that the President used the IEEP K to avoid the 8 AA requirement that restrictions. But this merely confirms the B AA's inadequacies in this area Critics of the recent use of lEEPA to impose trade controls assert that the President has Controls on Financial Transfers transfers to Soviet bloc countries. Neither the President nor the Secretary of Commerce has used this authority to date. Because of this and because of the substantial capital transfers to the Soviet Union and its allies, t h ere are now pro osals for legislation threat to the v .S The EM authorizes the President and the Secretary of Commerce to control financial strengthenin residential authority to control financial trans F ers to countries posing a hard currency wou f d not be able to carry out its full rogram of acquisition of Western Those proposin such controls argue that the Soviet Union; witheits chronic shortage of goods and technology, sup ort for client regimes, an sup 1 of insurrectionary movements worldwde were it n ot for R nds obtamed from the West. #ey contend that the President should have and exercise authority to control financial transfers that undermine U.S. national security and forei policy. Thus, legislation has been introduced that specifically would empo w er the Presi CP ent to restrict or regulate transfers of money or credits by'U.S financial institutions to Soviet bloc nations interests as can the transfer complement efforts power; even B Financial transfers can have as of certain goods and technologies . to control goods and technolo ies smugglers must be paid, and fp ew of I THE MYTHS OF CONTROL RELAXTION Several myths have figured prominently in the efforts to relax or eliminate national security export controls 11. See Roger W. Robinson, Jr East-West Trade and National Security Heritage Foundation Lecture No 7 50.

Myth No 1. There is so much cooperation that controls on any nation other than those I of the Soviet bloc is unnecessary Neutral states, such as Sweden and Switzerland, ve increasingly cooper atin with I CoCom controls. CoCom, meanwhile, has updated joint controls on computer f ardware and software and is reviewing on a continuing basis controls on other sensitive exports.

The reality, however, is that international cooperation remains insuffi cient. Sensilive U.S. exports to Western Europe or Japan still find their way to Moscow. Several CoCom countries do not have adequate enforcement resources to counter Soviet bloc acquisition effor Others such as Japan and West Germany, are reluctant to im pose felony penalties for wolations of controls.

Myth No.

2. Export controls are driving U.S. high technology companies out of I business.

In reality, the numbers of alle edl lost sales are eatly exa erated;,In.1984, thelast year for which figures are availab 9K e, t e U.S. denie c.r for,patio~~security.purposes less than three one-hundredths of one ercent of all exports. In fact, a high tec h nology companys growth in e ort sales, fmited as it supposedly is by export controls, often outpaces its growth in %e domestic U.S. market, where export controls are not a factor I I I Myth No 3. The Soviets are too backward to use U.S. technology. I This focuses solely on the Soviet civilian economy, which is backward b Westerniand even by some Asian standards. By contrast, the Sowet milita economy e ik iciently absorbs advanced technology. Western intelligence estimates that ef 2 ciencies in the military , sector allow the Soviets to place a new technology on the battlefield in half the time that it takes the West to do so. I Myth No 4. The Soviets are so far advanced that they havellittlelto gain from U!S technology This too is wrong, otherwise Moscow wou l d not be waging its massive effort to ob,tain Western technology. The Soviets do not have a civilian economy that generates innovation. Much of the technolo in Soviet weapon systems has been traced direct1 to the private acquired. sector in the West ere t he Soviets are advanced is in applying the tec i nology they have I Myth No.

5. Technology should be controlled, but not products I I 12. Applications for $58.2 million of U.S. exports were denied for national security reasons in 19

84. See, the United States Department of Commerce, Export Administration Annual Remrt FW 1984 (Washington, D.C I 1985 p 32. U.S. exports in 1984 were $219.9 billion. See: Economic Re-port of the President (Washington, D.C 1%7), p. 3

60. I I -8 I I Myth No 6. American business men are atriotic and would not sell sensitive goods and technology to the Soviets, even if allowef This surely is true 99 percent of the time, but not all the time. The Soviets have been able to identify individuals and even American firms which close the i r eyes to U.S. security needs in return for Moscow pa ng attcactive prices. Even those, businesses careful to companies that choose to strictly restnct technology would be at a disadvantage in I I I competing with those allowing I looser controls I comply with control laws woul g be subject to pressures from thelr sales offices, and those Myth No 7. U.S. businesses are so worried about keeping technolov from com etitors that export controls are not needed to keep them from shanng technolob with the &I viet s.

The truth is that firms often treat their technology and products as assets to be soid for the right price. Billions of dollars are earned each year by companies selling patent nghts. If commercial fears do not revent U.S. companies from selling technol ogy,.to the. i s. Japanese, why should such F ears discourage sales to Moscow I Myth No.

8. The U.S. does not need to control exports to Eastern Europe as ri4rously The Eastern European regimes carefully cultivate this erce tion. The fact is th$t their e "li eral" Polish and Romanian as to the Soviet Union intelligence services cooperate closely with the Soviets. services, in fact, may be the most cooperative.

Myth No 9. It is impossible anyway to keep sensitive goods and technology out of Soviet hands.

It is im ossible to prevent all militarily relevant technology from reaching Soviet hands forever. At it is both possible and desirable to raise the'costs and difficul to Moscow of technological generation ahead of Moscow. Given NATO's quantitative inferi ority in the conventional military balance maintainin .NATO's qualitative edge is the only way to I I i efforts to obtain such technolo and to revent current eneration techno 'y ogy from) reaching the USSR. By doing Bis, the #est can assure t f at it alwa y s remains at least a deter Soviet aggression or defeat it shod d it occur TI3 I I 1 CONCLUSION U.S. export, control laws should be strengthened by 1) Giving the President additional tool; to enforce export controls and to encourage 2) Re uiring that adequ a te resources be devoted to the administration of export 1 I I increased cooperation from America's allies controls 8 y the Commercq and Defense Departments, particularly in view of th.e establishment of the position of Undersecretary of Commerce for Expor t Admnistration I 8 I 3) Filling the existing ga in the President's control authority by reemphasis of his authority to control financi 3 transfers to U.S. adversaries. I 9I If the U.S. seeks to be secure, it must choose between the costs of an effective e x port control system and dramatically increased defense s ending. If the U.S. is not goin i to The Israelis who rely on Western arms agiunst overwhelmng numerical odds, have shown that the technological edge can make the essential difference on the battlef ield.

Progress has been made in slowing the flow of sensitive oods and technology to the Soviets but more can be done. Congress should reflect on fie comments made in 1980 by the late Senator Henry Jackson that a stron export control policy"is vital to saf eguard our seriously when we ask for their cooperation maintain its technological edge, then it will have to g alanc? the Warsaw Pact in num ers national security interests. It .is also essenti 5 if we want our friends and allies to take us I I 1 Prepared for The Heritage Foundation by Wayne Abernathy* p 1 I I Wayne Abernathy is a U.S. Senate legislative assistant. From 1981 to 1986 he served as a Senate Banking Committee economist specializing in export control matters 10-

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