CSCAP MEMORANDUM NO. 14

Guidelines for Managing Tradeof Strategic Goods

A Memorandum from theCouncil for Security Cooperation in the Asia Pacific (CSCAP)
March 2009

CSCAP Memorandum No. 14

GUIDELINES FOR MANAGING TRADEOF STRATEGIC GOODS
Introduction
Trade management protects a nation’s security, trade relations, andinternational reputation. It is fundamental to ensuring the security
and integrity of the global supply chain. It also serves as aconfidence-building measure for facilitating trade, economic
growth, and development. Using the guiding principles outlined inAppendix 1, this memorandum recommends specific measuresinvolving legislation, licensing procedures, enforcement practices,and industry outreach that are essential to an effective management
system for trading strategic goods.
Countries developing high-tech and value-added economies
increasingly depend upon their trade management system to protect
strategic goods and technology from diversion, manipulation, theft,and other criminal activities. Secure supply chains are critical to thesuccess of global nonproliferation efforts by guarding against theimproper transfer of legitimate dual-use and other strategically usefulcommodities to those wishing to acquire Weapons of Mass
Destruction (WMD) or radiological weapons capability. We mustalso ensure that nonstate groups ready to use these weapons do
not obtain such technologies and equipment. Raising awareness,due diligence, and risk assessment capabilities are important means
to this end.
Asia’s increasingly important role in the global economy, its
growing capabilities in value-added manufacturing and services
sectors, its highly developed transportation systems, including key
transshipment hubs, and the deepening integration of states within1and outside the region underscore the need to strengthen nationaland regional capacity to implement and enforce a management
system for trading strategic goods. United Nations Security Council
Resolution 1540 (UNSCR 1540) imposes an affirmative obligationon all member states to take active measures to prevent theproliferation of WMD. Managing the trade of strategic goods is anintegral component of that effort.
Increasing integration implies that effective trade management
is only possible on the basis of broader international cooperation.
Management systems for trading strategic goods should be promoted
by all Asia-Pacific community-building institutions including
ASEAN, the ASEAN Regional Forum (ARF), Asia-Pacific Economic
Cooperation (APEC), East Asian Summit (EAS), and ASEAN Plus
Three. Regional efforts to develop trade management systems forstrategic goods will ensure that national programs are harmonized
to the extent possible, respecting and reflecting particular domestic
circumstances and capabilities. Insofar as differences among states
exist, all nations should commit to assisting other governments inneed to improve their capabilities, participate meaningfully in such
regimes, and enjoy the full range of economic and security benefits.
To accomplish this objective, we urge all governments andeconomies to conduct a rigorous assessment of their capabilities
and requirements for managing the trade of strategic goods.

Recommendations
An effective management regime for strategic goods should be based
upon a common set of elements. These elements include, inter alia,
comprehensive legislation, effective procedures for licensing andenforcement, associated incentives and penalties, fostering goodinter-ministry cooperation as well as mandatory and sustainedoutreach to industry. CSCAP offers the following recommendationsin the interest of establishing such a regime in the region:
1. Legislation(a) Each member state should establish a comprehensive law
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or amend existing laws to provide for controls on all
activities by unauthorized individuals, organizations, andgroups regarding all goods, equipment, materials, softwareand technologies related to Weapons of Mass Destruction(WMD) and their delivery systems.
(b) Controlled activities, as per UNSCR 1540, should include
possession, stockpiling, transport, exports, re-exports,transfers, imports, transit, transshipment, brokering,intangible transfers, and warehousing, complementing andconsistent with prohibitions on manufacture, sale, use, andintent to use that already exist in regulations of most states.
(c) National legislation should establish either a unified control
list that covers items related to all types of WMD and theirdelivery systems (i.e., nuclear, chemical, biological, missile,munitions) or individual WMD control lists for each type,drawing upon models such as the European Union list ofitems or technologies to which these controls apply. Suchlists will provide a clear frame of reference for enforcement
agencies such as Customs, border security, national police,
and armed forces as they train their staff to identify
proliferation-relevant items and prohibited activities.
(d) The legislation should have provisions for “catch-all”
controls. Exporters must pay attention to end users and end
uses and should have the ability to regulate any exporttransaction regardless of whether the product or technology
is on a control list or not, when it is known that the item
will be used in a program of proliferation of WMD or relatedmaterials. The primary responsibility for ensuring proper use
rests with original manufacturers.
(e) Member states should consider establishing a region-widecommon control list and common minimum licensing
criteria, keeping in mind individual national capacity,
capability, and state structure. This would allow for uniform
standards and controls across the region and greatly reducetime and cost incurred in the review of license and Customs
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documents relating to regional trade in advanced goods,technologies and services.
2. Licensing Procedures(a) Criteria should be established for a transparent licensing
process that includes national security, foreign policy, tradepromotion, and technology development.
(b) An inter-agency license review process that involves all theconcerned ministries/agencies should be established toensure all relevant factors (national security, foreign policy,trade promotion, and technology development) are duly
considered in reaching each decision.
(c) In addition to the inter-agency license review process, aconsolidated electronic database on exporters, importers,and foreign end users involved in transactions relating tocontrolled items should be established. The database would
allow governments to monitor the number of licenses issued
for each technology-type over time – a useful statistic fordomestic and foreign policy purposes. It would also be auseful tool for enforcement agencies as they develop riskbased systems for cargo inspections.
(d) Procedures to confirm, as appropriate, the legitimacy ofstated end users and end uses.
3. Enforcement(a) All states should consider consolidating authority into alimited number of ministries/agencies with specific authority
to serve as the nodal enforcement mechanism for strategic
trade violations.
(b) Policies, laws, and regulations should provide enforcement
agencies the mission, authority, training, and resources
necessary to detect, identify, and deter transfers that violate
export control laws and regulations.
(c) Procedures should be developed for evaluating parties4

involved in export, re-export, transit, and transshipment
transactions.
(d) Legal authorities should permit routine advanced review ofdetailed manifest data (including electronic manifest) toanalyze for suspicious transfers.
(e) Authorized and empowered ministries/agencies should workwith trade management mechanisms and regimes toestablish a positive correlation between each of the licensed
commodities on the country’s internal control lists and thetrade-relevant harmonized tariff system codes (HS), to ensurethat enforcement officials (Customs, border guards, andcoastal patrol service) are easily able to identify potentiallycontrolled products on the documents that they review(shippers export declaration, shipping manifest, and Customs
declaration, etc).
(f) The agency empowered with inbound and outbound trademonitoring, should develop a risk management system,
including automated and targeting strategies, that will assist
these officers, licensers, and others in conducting risk review
on manifests quickly and prior to the goods transiting,transshipping, arriving, or departing at the nation’s port.
(g) Enforcement agencies responsible for risk management
should strive to share information to ensure this information
is used for assessing transfer risk and aiding in investigations.
(h) The agency designated with investigative responsibility
should be authorized to take the lead in investigations
related to sensitive commodity trade violations as well asan active role in the prosecution of civil and criminal cases
related to WMD-related violations.
(i) WMD proliferation and crimes related to illegal strategiccommodity transfers, including corruption, should be treatedwith the utmost severity by assessing fines and criminal
penalties in accord with the intent and extent of the transfer.
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(j) The enforcement and legal community should be clear
about the severity attached to different types of transfers that
violate national security so penalties are in accord withintention and the proportional damage to state security.
(k) All agencies involved in enforcing WMD-relevant laws andregulations, including prosecutors and the judiciary, should
be provided relevant training.
(l) All agencies involved with enforcement should have a
dedicated process in which to seek expert national orinternational technical assistance on a potential controlled item.
(m) All enforcement agencies should take advantage ofassistance being offered by the international community inthe area of enforcement and reach out to the United Nationsand relevant assistance providers with requests for any
required training support.
4. Industry-Government Relations(a) Effective outreach should be conducted to raise theawareness of companies and commercial individuals about
their responsibilities under the country’s/economy’s export
control system, including penalties for violations.
(b) Either the lead agency for license review or the lead agency
for enforcement should establish standard operatingprocedures to provide outreach to industry. This should
include developing and updating a website devoted toclarifying WMD-relevant regulations. This website could
provide texts of all relevant laws, regulations, guidelines andforms, along with links to all concerned ministries, contact
information, and appropriate explanations that would help
businesses direct their queries relating to compliance orcommodity classification or other issues.
(c) Governments and industry should institutionalize dialogue
on the management of strategic goods trade. This should
include events where government officials and industry
6representatives exchange views on WMD-relevant
regulations and implementing procedures. Annual meetingsof various manufacturers and industry associations, ortechnology exhibitions and trade fairs, might be utilized toorganize such interactive meetings.
(d) Agencies participating in investigations should actively workwith their strategic industry to develop a close relationshipto develop leads related to illicit transfer of controlledcommodities as well as having a “hotline” available for otherinformants.
(e) Governments and industry should create incentives toencourage compliance with strategic trade systems topromote trade.
(f) Seek voluntary compliance by industry, including
encouragement of relevant companies to establish internal
compliance procedures that incorporate checks on end users
and end uses of concern, and governments should be readyto advise and assist them in that process.
5. Financial and Technical Assistance(a) ASEAN and/or the ARF should promote the creation of apool of technical and financial resources that will be madeavailable to strengthen capacity building in managing thetrade of strategic goods. This effort should complement
bilateral efforts.
(b) Countries with more advanced management systems should
provide financial and/or technical assistance to those withnascent or less developed systems. This assistance should
be sourced bilaterally and recipient countries should makea thorough evaluation of their needs prior to seeking
assistance from donor countries.
(c) Donor and recipient countries should meet periodically toreview and evaluate assistance given and to guide furtheraction.
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Appendix 1
Principles for Managing Trade of Strategic Goods
The Export Controls Experts Group supports, and believes that
regional export control (XC) efforts should be guided by thefollowing export controls guiding principles:•Regulating the transfer of nuclear, chemical, radiological,biological, and missile-related technology and commodities
contributes to common security.

•Comprehensive export controls are fundamental to ensuring thesecurity of global trade. Because of increasing globalization,effective export controls are only possible on the basis ofregional and broader international cooperation.

•An effective XC regime should be based upon a common setof export control elements that can be applied to an integral
list of controlled items. These elements include, inter alia,
comprehensive legislation, effective licensing procedures andenforcement, and industry outreach, with appropriate incentives
and penalties.

•Regional XC cooperation requires the sharing of national
information on XC policies, the current state of implementation,and future priorities, plus the development of mutually
supportive confidence building measures and assistanceprograms.

•

XC best practices that can be applied to the development andimplementation of national standards should be identified andutilized. National and regional cooperative XC efforts should
be consistent and mutually supportive.

•The private sector must be an integral part of any XC regime
and should bear a social responsibility to meet commonsecurity needs.

•While serving the objective of nonproliferation, export controls
should not hamper legitimate commerce (including the peacefuluse of dual-use technology).
8About CSCAP
CSCAP is a non-governmental (second track) process for dialogue
on security issues in the Asia Pacific. Membership in CSCAP is on
an institutional basis and consists of Member Committees. Current
membership comprises Australia, Brunei Darussalam, Cambodia,Canada, China, the European Union, India, Indonesia, Japan, theDemocratic People’s Republic of Korea, the Republic of Korea,Malaysia, Mongolia, New Zealand, Papua New Guinea, thePhilippines, Russia, Singapore, Thailand, Vietnam and the USA.
The functions of CSCAP are as follows:(a) to provide an informal mechanism by which political andsecurity issues can be discussed by scholars, officials, and othersin their private capacities;(b) to encourage the participants of such individuals from countries
and territories in the Asia Pacific on the basis of the principleof inclusiveness;(c) to organise various working groups to address security issues
and challenges facing the region;(d) toprovide
policyrecommendations
tovariousintergovernmental bodies on political-security issues;(e) to convene regional and international meetings and othercooperative activities for the purpose of discussing politicalsecurity issues;(f) to establish linkages with institutions and organisations in otherparts of the world to exchange information, insights andexperiences in the area of regional political-security
cooperation; and(g) to produce and disseminate publications relevant to the otherpurposes of the organisation.
Study groups are the primary mechanism for CSCAP activity. As ofMarch 2009, there were seven CSCAP Study Groups. These areconcerned with: (i) Countering the Proliferation of Weapons of Mass9Destruction in the Asia Pacific; (ii) Export Controls; (iii) Multilateral
Security Governance in Northeast Asia/North Pacific; (iv) Naval
Enhancement in the Asia Pacific; (v) Safety and Security of Offshore
Oil and Gas Installations; and (vi) Security Implications of Climate
Change; and (vii) Transnational Organized Crime Hubs in the Asia
Pacific.
This memorandum was produced by the CSCAP Export Controls
Experts Group (XCXG), a subgroup of the CSCAP Study Group on
Countering the Proliferation of Weapons of Mass Destruction inthe Asia Pacific and was approved by the 30th CSCAP Steering
Committee Meeting in Bangkok, Thailand, on 22 January 2009.
Further information on CSCAP can be obtained from the CSCAP
website at www.cscap.org or by contacting the CSCAP Secretariat:
CSCAP Secretariat
ISIS Malaysia
1 Persiaran Sultan Salahuddin
PO Box 12424
50778 Kuala Lumpur
Malaysia
T: +603-2693 9366 Ext 125
F: +603-2693 9375
E: cscap@isis.org.my10