U.S. Export Policy Toward the PRC
Commodity Classification Requests Under the Commerce Control List
The Commerce Control List consists of categories of items grouped by Export Control Classification Number.119 If an exporter is uncertain regarding the correct Export Control Classification Number for a commodity to be exported, the exporter may obtain the appropriate number by submitting a "Classification Request" to the Bureau of Export Administration at Commerce.120 The Commerce Department handles approximately 5,000 classification requests each year.
The Commerce Department rarely coordinates commodity classification requests with other U.S. Government departments or agencies. However, pursuant to procedures approved by President Clinton in April 1996, the Commerce Department shares responsibility with the State Department and the Defense Department for classification requests involving:
items/technologies specifically designed, developed, configured, adapted and modified for a military application, or derived from items/technologies specifically designed, developed, configured, adapted or modified for a military application.121
The Commerce licensing officer handling a commodity classification request would need to determine whether the request met the above criteria for referral.
Since the adoption of the April 1996 procedures, the Commerce Department indicated it had referred to the State Department only 22 classification requests out of a total of 3,374 in 1997 (that is, 0.65 percent). It referred four out of 3,191 in 1998 (that is, 0.13 percent).122
Commerce╠s commodity classification process is different from the commodity jurisdiction process administered by the State Department. At State, all commodity jurisdiction requests are sent to the Departments of Defense and Commerce.
Iain S. Baird, Deputy Assistant Secretary of Commerce for Export Administration, says that copies of classification requests are maintained and filed "consistent with normal recordkeeping." However, Baird adds that the classification requests are disbursed by the licensing divisions, and these records are archived periodically along with other documents.123 Also, records of classification requests are not kept in the Export Control Automated Support System database maintained by Commerce.
The Commerce Department was unable to comply with a request from the Select Committee for copies of classification requests acted on since 1992, as such documents are not readily accessible. Commerce plans to include information concerning classification requests in the anticipated redesign of the Commerce database.124
If, in response to a commodity classification request, the Commerce Department incorrectly decides an item does not require a license to be exported, the classification decision is not reviewed by another department or agency, and the exporter is free to export the item without a license. Only if Commerce decides the item requires a license to be exported will the Departments of State, Defense, and Energy, and the Arms Control and Disarmament Agency, have an opportunity to review the license application (including the commodity classification) pursuant to Executive Order 12981.
Since the State Department does not review the classification decision when the Commerce Department determines that no license is required under the Commodity Control List, it is possible that the State Department, if consulted, might have determined the item to be a defense article or defense service covered under the U.S. Munitions List.
Export Licenses for Militarily Sensitive Technology: Department of State
Procedures for Referral to Other Departments and Agencies of Requests to Export U.S. Munition List Items
Any license application submitted to the Department of State╠s Office of Defense Trade Controls to export a "defense article" or "defense service" on the U.S. Munitions List may be reviewed by the Department of Defense.
William Lowell, Director of the Office of Defense Trade Controls at State, describes the process as follows: When an application arrives at the State Department, it is assigned to a licensing officer125 who reviews relevant information and then recommends approval or denial of the application, or approval with conditions.126 The licensing officer╠s decision typically is accepted, unless another entity recommends denial.127
If the State Department licensing officer needs additional information to understand the technology covered by an application, the licensing officer sends the application to the Defense Department.128 There, the Defense Technology Security Administration determines who else in the Defense Department should review the application, and provides the State Department with a coordinated Defense Department review.
In 1997, the State Department referred about 30 percent of its cases to the Defense Department.129 The Commerce Department is not involved in the review of U.S. Munitions List license applications.130
There is no memorandum of understanding between the State and Defense Departments on this subject. Lowell says none is needed, given the good relations between the departments. The State Department refers applications to the Defense Department in hardcopy form, as Defense is not connected electronically to State for this purpose. Nevertheless, the Defense Department sends its comments and final position on applications to State via a Defense database.
According to Lowell, the Defense Department has a veto in the State Munitions List system on exports, based on national security grounds. The State Department also has a veto on exports, based on foreign policy grounds. State and Defense tend to defer to one another, and appeals are extremely rare.131
By contrast, in the Commerce Department licensing process, none of the five participating departments and agencies █ Commerce, Defense, State, Energy, and the Arms Control and Disarmament Agency █ has a veto over license applications.132 In all cases except at Commerce╠s Operating Committee level (where the decision of the Commerce Department Chair prevails), a majority vote determines the outcome at the Advisory Committee for Export Policy and the Export Administration Review Board levels. The decision of the Operating Committee Chair, and the result of a vote by the ACEP or the Export Administration Review Board, can be appealed by any of the five participating agencies.
There is no provision in the International Traffic in Arms Regulations to consider either commercial factors or the foreign availability of a U.S. Munitions List item, according to Lowell.133 This is because independent of whether foreigners can sell an item, the U.S. Government may wish to preserve a technology lead, or would not want certain countries to obtain the military technology from the United States. According to the regulations:
The intended use of the article or service after its export (i.e., for a military or civilian purpose) is not relevant in determining whether the article or service is subject to the [International Traffic in Arms Regulations] controls. . . 134
For dual-use items covered by the Export Administration Regulations, the foreign availability of a commodity can be the basis for removing export controls on that commodity. It cannot, however, override national security.135
Commodity Jurisdiction Process
The commodity jurisdiction process involves a State Department decision as to whether and where a commodity belongs on the Munitions List. Before making its determination that an item is covered by the Munitions List, the State Department may consult the Defense Department, the Commerce Department, other U.S. Government agencies, and industry where appropriate. The determination includes an assessment of whether an article or service has predominantly civil or military applications.136
The State Department is required to submit a report to Congress at least 30 days before any item is removed from the U.S. Munitions List by the commodity jurisdiction process. An exporter can invoke the State Department╠s commodity jurisdiction procedure for either of the following reasons:
- If doubt exists as to whether an article or service is covered by the U.S. Munitions List or the Commerce Control List
- To consider a redesignation of an article or service that is covered by the Munitions List
However, a commodity jurisdiction decision cannot be used as the sole basis to justify an export, according to William Lowell, Director of the Office of Defense Trade Controls at the Department of State.137
Lowell says that the administration of the Munitions List via the commodity jurisdiction process started informally in the 1960s or 1970s. 138 Today, there are several hundred commodity jurisdiction cases per year. In the spring of 1996, the National Security Council disseminated new procedures on commodity jurisdiction and commodity classification approved by President Clinton. The new procedures require State to refer all commodity jurisdiction cases to Defense and Commerce, and include an escalation process. Under this process, a State Department decision can be appealed to the assistant secretary level, then to the under secretary level, and then to the President.139 Since the new procedure was announced in early 1996, two cases have been appealed to the White House, according to Lowell and Rose Biancaniello, Deputy Director for Licensing at the Office of Trade Controls. 140
Lowell says that although State sometimes sees a commodity classification case from the Commerce Department, referral from Commerce to State does not occur systematically. Lowell says that it has always been State╠s view that there should be more interagency coordination on Commerce╠s commodity classification cases, and that State╠s commodity jurisdictions cannot be determined by any agency other than State.141
Registration of Exporters
A fundamental difference between the State Department and Commerce Department export control systems, according to the State Department╠s Lowell, is that exporters of munitions are required by law to register with the State Department in order to apply for a license.
The names of the registrants are vetted with the law enforcement community, and maintained in a database of about 10,000 names. The database also contains registered munitions manufacturers who are assigned a State Department identification code.142
Congressional Oversight and Required Reports
Lowell notes that another difference between Commerce Department and State Department export licensing systems is the greater level of congressional oversight of U.S. Munitions List exports compared to Commerce Control List exports.
For example, the State Department is required by the Arms Export Control Act to provide Congress with quarterly reports of U.S. Munitions List exports by country. The foreign affairs committees respond to these reports with many questions.143
Moreover, exports of "major defense equipment" █ equipment costing over $200 million or involving over $50 million in research and development █ must be reported to Congress.144 Exports of such equipment to the PRC are subject to a 30-day waiting period.
The State Department must also report to Congress regarding political fees, contributions, and commissions paid by U.S. companies overseas. It must also provide Congress with an annual report, pursuant to the Foreign Assistance Act, showing the total dollar value of exports and commodities it licenses by country per year.
The State Department processes over 150 sales of major defense equipment per year, according to Lowell. The State Department must clear these cases with Congress before it may allow the export.145 In 1997, Congress was sent approximately 140 cases, about 40 percent of the dollar value of all the U.S. Munitions List cases. These received considerable scrutiny and were reviewed widely, with some going to the congressional armed services committees.
The State Department is not legally required to explain any licensing decision to the applicant, according to Office of Defense Trade Controls officials. However, if the decision can be explained in an unclassified way, State may explain the decision to the applicant. A company can ask for a case to be reviewed, but most often this occurs by the company calling its Representative in Congress, like any other constituent. If the case involves a denial because it exceeds the level of sophistication that may be sent to a particular country, the State Department can inform the company, which sometimes can reconfigure the item to be acceptable for export.146
Foreign-Origin Items with U.S. Content
U.S. Munitions List items do not lose their controlled identity when incorporated into foreign systems, according to Lowell.147
State has nothing like Commerce╠s de minimis rule that determines whether U.S. control of foreign-origin items is appropriate based on the percentage of U.S. content. Rather, the Department of State controls technology using a "look-through" policy: if another country wants to sell a controlled "defense article" (for example, an aircraft) with U.S. parts, it will need U.S. approval.
This requirement was not stated in the original Arms Export Control Act, but a 1996 amendment to section 3 of the Act █ authorizing re-transfers between NATO partners without advance U.S. consent █ indicates that the general rule is to require prior U.S. approval.
Carol Schwab of the State Department Legal Adviser╠s office affirms State╠s legal position that there is no basis in the Arms Export Control Act for a country to terminate U.S. controls by re-transferring equipment containing U.S.-origin components to a third party.148
Penalties for Violation of the Arms Export Control Act and ITAR
The Arms Export Control Act provides criminal penalties for willful violations, including one or both of the following:
- Fines up to $1 million
- Imprisonment for not more than ten years
Civil fines under the International Traffic in Arms Regulations are the same as those provided under the 1979 Act and the Export Administration Regulations, except that the maximum civil penalty imposed on the export of "defense articles" and "defense services" is $500,000.149
Administrative sanctions under the International Traffic in Arms Regulations include:
- Debarment from participating directly or indirectly in the export of defense articles
- Interim suspension
- Seizure or forfeiture of illegally exported articles
- Seizure of any vessel, vehicle, or aircraft involved in illegal exports150
The International Traffic in Arms Regulations contain provisions for exporters to self-disclose their violations. Voluntary self-disclosure may be considered as a mitigating factor in determining the appropriate administrative penalties. However, the weight to be given to a self-disclosure is entirely within the discretion of the State Department. Self-disclosure does not prevent the State Department from referring transactions to the Department of Justice for criminal prosecution.151
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