Export Controls and Nonproliferation Policy

May 1994

OTA-ISS-596

NTIS order #PB94-179975

GPO stock #052-003-01371-1
Recommended Citation: U.S. Congress, Office of Technology Assessment, Export

Controls and Nonproliferation Policy, OTA- ISS-596 (Washington, DC: U.S. Government

Printing Office, May 1994).

for sale of u.s. government printing office

Superintendent[ of documents, Mail Stop SSO1p. Washington , DC 20402-9328

ISBN O-1 6-045014-4
Foreword

E

xport controls on dual-use goods, technology, and software will continue to be one useful tool in U.S. efforts to stem the proliferation of

weapons of mass destruction and missiles that can deliver them. Export controls cannot completely block such proliferation. However,

they make a proliferant’s task harder; by increasing the cost and the difficulty

of weapon programs, they can buy valuable time for broader nonproliferation

efforts to take effect.

The benefits of export controls, and their ultimate effectiveness, are hard to

measure. They depend on several factors, most importantly the degree to

which nations capable of supplying key weapon technologies cooperate in

controlling their supply. Controls also impose costs, which—like the benefits—are difficult to quantify. These costs are borne primarily by companies

producing controlled goods

The difficult task for both Congress and the executive branch is to design an

export control system that serves U.S. security interests but also takes due account of economic interests and fairness to regulated exporters.

The primary purpose of this report is to identify options for enhancing the

effectiveness of export controls in slowing or preventing the spread of capabilities to develop and produce weapons of mass destruction. Nevertheless, reducing the burdens of export regulation on U.S. exporters has been a major focus of

discussions about revising the Export Administration Act. Therefore, the report also examines policy options directed mainly toward the goal of reducing

these burdens, but with special emphasis on their implications for nonproliferation policy.

OTA prepared this report as part of an assessment on the proliferation of

weapons of mass destruction, which was requested by the Senate Committee

on Foreign Relations and the Senate Committee on Governmental Affairs, and

endorsed by the House Permanent Select Committee on Intelligence, the

House Committee on Foreign Affairs, the Senate Committee on Banking,

Housing, and Urban Affairs, and the House Committee on Armed Services.

ROGER C. HERDMAN

Director

. . .

Ill
Advisory Panel

James F. Leonard1

Chairman since 6/1/93

Executive Director

Washington Council on

Non-Proliferation

James E. Goodby2

Chairman through 3/22/93

Distinguished Service Professor

Carnegie-Mellon University

George Anzelon

Associate Division Leader

Lawrence Livermore National

Laboratory

Will D. Carpenter

Chemical Industry Consultant

Lewis A. Dunn

Asst. Vice President

Science Applications International

Corp.

Randall Forsberg

Executive Director

Institute for Defense and

Disarmament Studies

Thomas R. Fox

Director

Office of National Security

Technology

Pacific Northwest Laboratories

Alan R. Goldhammer

Director of Technical Affairs

Industrial Biotechnology

Association

John M. Googin

Senior Staff Consultant

Martin Marietta Energy Systems,

Inc.

Robert G. Gough

Senior Member, Technical Staff

Sandia National Laboratories

Elisa D. Harris3

Senior Research Analyst

The Brookings Institution

Geoffrey Kemp

Senior Associate

Carnegie Endowment for

International Peace

Joshua Lederberg4

Rockefeller University

John W. Lewis

Center for International Security

and Arms Control

Stanford University

Lee W. Mercer

Corporate Export Manager

Digital Equipment Corp.

Matthew S. Meselson

Department of Biochemistry and

Molecular Biology

Harvard University

Stephen M. Meyer

Center for International Studies

Massachusetts Institute of

Technology

Gary Milhollin

Director

Wisconsin Project on Nuclear

Amls Control

Marvin M. Miller

Senior Research Scientist

Department of Nuclear

Engineering

Massachusetts Institute of

Technology

Janne E. Nolan

Senior Fellow in Foreign Policy

The Brookings Institution

William C. Potter

Director

Center for Russian and Eurasian

Studies

Monterey Institute of International

Studies

iv
Barbara Hatch Rosenberg Leonard S. Spector

Division of Natural Sciences Senior Associate

State University of New York at Carnegie Endowment for

Purchase International Peace

Lawrence Scheinman5

Sergio C. Trindade

Associate Director President

Peace Studies Program SE2

T International, Ltd.

Cornell University

1panel member until June 1, 1993; panel

chair after June 1, 1993.

2Re~ign~ t. ~conle Chief U.S. Negotiator

for Safe and Secure Dismantlement of Nuclear Weapons.

~Re~lgned Jan, 29, 1993 to jt)in Nati(mal Security Council staff.

~Ex-officio;” Member of Technology Assessment Advisory Ct)uncil.

‘Resigned Aug. 1.3, 1993 to 13ec(mle C(wnselor for N(mproliferati(m in the U.S. Department of Energy.

Note: OTA appreciates and is grateful for the valuable assistance and thoughtful critiques provided by the advisory panel members.

The panel does not, however, necessarily approve, disapprove, or endorse (his report. OTA assumes full responsiblity for the report

and the accuracy of its contents.

v
Preject Staff

Peter Blair PROJECT STAFF

Assistant Director Gerald L. Epstein

Industry, Commerce, and Project Director

International Security Division

THOMAS H. KARAS

Alan Shaw

Program Director Anthony Fainberg

International Security and Space

Program

coNTRACTOR

ADMINISTRATIVE STAFF

Jacqueline Robinson Boykin

Office Administrator

N. Ellis Lewis

Administrative Secretary

Dan Fenstermacher

vi
Additional Reviewers

lain Baird Greg Garcia Richard Seppa

Department of Commerce American Electronics Association Tektronics, Inc.

Washington, DC Washington, DC Beaverton, OR

Richard T. Cupitt

Center for East-West Trade Policy

The University of Georgia

Athens. GA

Zachary Davis

Congressional Research Service

Washington, DC

Paul Freedenberg

Baker & Botts, L.L.P.

Washington, DC

John Harvey Henry Sokolski

Center for International Security Aletheia Enterprises

and Arms Control Arlington, VA

Stanford University

Stanford, CA Kenneth R. Timmerman

The Middle East Data Project

Michael Pocalyko Kensington, MD

Office of the Secretary of Defense

Washington, DC

Note: OTA appreciates and IS grateful for the valuable assistance and thoughtful critiques provided by the reviewers. The reviewers

do not, however, necessarily approve, disapprove, or endorse this report. OTA assumes full rcsponsibility for the report and the

accuracy of its contents.

vii
contents

1 Summary 1

Bottom Lines 2

Options for Enhancing Export Control

Effectiveness 2

Options for Ameliorating Industry Burdens 7

2 Introduction 11

Nonproliferation Emphasis 12

Export Enhancement Emphasis 13

3 Current United States Nonproliferation

Export Controls 17

4 Weighing Benefits and Costs 21

Assessing Benefits 21

Estimating Costs 25

5 Options for Enhancing Export

Controls 31

Improved Export Control List-Making 31

More Effective Licensing Administration 33

Improved Enforcement 38

Strengthening Multilateral Controls 42

6 Reducing the Burdens on Industry 55

Reduce the Numbers and Purposes of Controls 55

Eliminate the “Knows, is Informed, or has Reason to

Know” Tests 59

End Unilateral Reexport Controls on Exports to

Cooperating Countries 63

Streamline the Application Process 64

Analyze and Publish the Economic Costs 65

. . . Vlll
APPENDICES

A Estimating the Economic Costs of Export

Controls 67

B Complexities of Setting Export Control

Thresholds: Computers 71

C Glossary of Abbreviations 77

Index 79
Summary

E

xport controls on dual-use goods, technology, and software will continue to be one useful tool in U.S. efforts to

stem the proliferation of weapons of mass destruction and

missiles that can deliver them. The effectiveness of export

controls in slowing proliferate ion will vary with the characteristics

of the weapons of concern, the capabilities of the target countries

and programs, the controllability of the designated commodities

and technology, the degree of international cooperation, and the

quality of enforcement. In some circumstances, they may do 1ittle

to stem proliferation; in others, they may impose significant obstacles and delays in acquiring such weapons. Thus, they may buy

important time during which policy makers may bring other nonproliferation tools to bear.

The overall benefits to national security of applying export

controls come at a price to the companies and industries whose

products are controlled. The difficult task for both Congress and

the executive branch is to design an export control system that

serves U.S. security interests but also takes due account of economic interests and fairness to regulated exporters. The task is

made more difficult by the inherent problems in trying to estimate

both the benefits and the costs of export controls.

This report is a product of OTA’s project on the proliferation of

weapons of mass destruction. As such, its primary purpose is to

identify opt ions for enhancing the effectiveness of export controls

in slowing or preventing the spread of capabilities to develop and

produce those weapons. Nevertheless, reducing the burdens of

export regulation on U.S. exporters has been a major focus of discussions about revising the Export Administration Act. Therefore, the report also examines policy options directed mainly at

The difficult task for both

Congress and the

executive branch is to

design an export control

system that serves U.S.

security interests but also

takes due account of

economic interests and

fairness to regulated

exporters.

II
2 I Export Controls and Nonproliferation Policy

the latter goal, but with special emphasis on their

implications for nonproliferation policy.

BOTTOM LINES

1.

2.

3.

4.

Several options are available for improving the

effectiveness of nonproliferation export controls:

 some of the options require increased resources and priority for nonproliferation objectives,

■ some would require considerable institutional change within the U.S. government,

• some would require substantial changes in

international attitudes toward nonproliferation export controls, and

■ none of the enhancement options is a ‘*magic

bullet” that will dramatically alter the prospects for stemming proliferation.

Formulating better export control policies requires that the U.S. government gather and

analyze better and more complete information about the actual economic costs of

maintaining export controls.

Assessment of effectiveness and costs of nonproliferation controls should be separated from

that for controls established for other purposes.

Industry concerns about the burdens imposed

by export controls could be addressed by the

imposition of rigid rules limiting U.S. unilateral imposition of controls; however, from the

point of view of nonproliferation policy, it

would be preferable to leave the executive

branch enough discretion to adapt to specific

exceptional situations, coupled with:

• a general presumption against unilateral controls and

• extensive reporting to, and oversight by,

Congress on policy rationale, outcomes, and

costs.

OPTIONS FOR ENHANCING EXPORT

CONTROL EFFECTIVENESS

I List-Making

Issue: What measures might improve the ability of the U.S. government to identify the export items, buyers, and end-users that pose

proliferation risks?

Several U.S. agencies are involved in setting

U.S. export control policies. For various reasons

(bureaucratic as well as technical) information is

not shared as systematically among them as it

might be.

Option: Develop shared and improved database.

Newer computers, with higher speed and more

memory, allow consideration of new techniques

for distributing, sifting, and analyzing information on proliferation problems. Applying such

techniques within the government, however,

would require some changes in bureaucratic procedures as well as some additional resources.

| Licensing Administration

Issue: What measures might allow the officers

reviewing export application licenses to bring

the best and most complete information to bear

on their judgments?

Option: Modernize the license-processing database.

The computer technologies alluded to in the

section on list-making could be even more usefully applied to improve the license application review process. Ideally, the interagency computer

system would allow analysts in all reviewing

agencies to extract in real time: data about other

previous or current applications, technical background data on the proposed exports, and current

intelligence or other data about the parties to the

proposed transaction.

Issue: How can the external accountability of

the nonproliferation export licensing process

be improved?

Option: Publish nonproprietary licensing data.

Post-licensing publication of data summarizing dual-use license approvals would enhance unclassified research by nongovernmental investigators of export-import patterns that might

identify previously undetected weapon programs

or supply networks (see below, in the section on

improving multilateral export controls, for the

benefits of strengthening unclassified analytic efforts). Second, publishing licensing information
Chapter 1 Summary 13

might set a precedent for helping to persuade other

nations to release comparable information, thus

easing the task of both governments and non-governmental groups in identifying possible avenues

of proliferation.

Undertaking this policy would require special

care in protecting legitimate proprietary data from

access by exporters’ competitors.

Issue: How can the broadest possible range of

substantive, technical, and policy judgment be

brought to bear on licensing decisions?

Referrals of license applications by the Department of Commerce for review by other agencies

now takes place according to rules agreed on

among the agencies of jurisdiction. Critics of past

licensing decisions have argued that, in practice,

Commerce inappropriately approved licenses that

other agencies would have blocked if given the

chance. Others point out that Commerce acted

within the laws and higher level policy guidance

of the times.

Option: Formalize interagency review processes

for licenses involving proliferation-controlled

items.

Various advocates have proposed that all military-relevant license applications be routinely referred to the Defense Department or the Arms

Control and Disarmament Agency, or that all nuclear-related applications be referred directly to a

legislatively (not just administratively) established Subgroup on Nuclear Export Coordination.

A related issue is the degree of independent

power to be assigned to individual agencies and to

interagency committees. Should each agency

have a veto over license applications, should interagency committees vote by majority rule, or

should Commerce have the power of decision unless another agency invokes escalation processes

to appeal the majority or Commerce’s decision?

Proponents of the strictest possible enforcement of export controls argue that the more review. the greater the chance of blocking inappropriate exports. Proponents of a streamlined

review process argue that too much bureaucracy

can delay license decisions to death, even when

their rejection is not justified.

Two additional considerations might be

weighed in this debate. The first is that thorough,

multi agency reviews within reasonable periods of

time are feasible if agencies are required to make a

decision either by action or by default within a

specified period and if they are given sufficient

manpower and technical resources for license reviews. Second, attempting to stack the deck in licensing decisions by granting one agency or

another primary jurisdiction is not necessarily a

permanent solution to perceived problems. For

example, the Defense Department in previous administrations has been less willing to approve

some exports than other departments; in the fall of

1993, however, it seems to have been in full

agreement with the Commerce Department that

current thresholds of performance for controlled

computers were unrealistically low.

I Enforcement of Regulations

Issue: How can the government help exporters

make better evaluations of prospective customers?

Option: Distribute more information on suspect

buyers, users, and programs.

One legislative proposal is for the government

to publish a regular bulletin to better inform exporters about the risks of proliferation and what

exporters can do to help reduce those risks. U.S.

companies have in the past provided the government with important leads about illegitimate buyers; increased sharing of government information

with exporters might enhance the latter abilities

to help. Dissemination of information by the government may sometimes imperil intelligence

sources and methods or risk undermining ongoing

investigations. It also risks the embarrassment,

and possibly the injustice, of publication of suspicions that turn out to be incorrect. The potential

payoff from more active industry cooperation

would have to be weighed against such risks.

Issue: How can verification and enforcement

activities be made more effective?

Option: Improve pre-license and post-shipment

checks.
4 | Export Controls and Nonproliferation Policy

Commerce Department pre-license checks of

potential buyers (and post-shipment checks on approved licenses) can help identify suspicious customers. Resources for these checking activities

have been limited, and the checks conducted have

been poorly planned and executed. Additional resources and top-level attention to developing systematic strategies could make checks a more useful tool (although their utility will remain limited

for many types of exports). Additional resources

for Export Administration and Customs enforcement activities could also be considered.

Option: Improve Bureau of Export Administration Enforcement Office data resources.

Enforcement officials at Commerce’s Bureau

of Export Administration (BXA) have been studying various sources of data beyond those available

from intelligence and law enforcement agencies to

see if they might help reveal suspicious export

patterns. For example, U.S. Census data on all the

types and quantities of items going to a particular

country might reveal purchasing patterns that suggest diversion of imports to a proliferant weapon

program. Thus far, however, Commerce has not

had the resources to put this sort of analysis into

the context of a larger, more encompassing database, of the type described above.

Option: Fully utilize sanction authorities.

Current legislation gives the executive branch

a range of economic sanctions (including the imposition of further, noneconomic, sanctions) to

apply to foreign “persons” who aid proliferation

through the sale or transfer of items on U.S. control lists. (The Clinton administration draft Export

Administration Act (EAA) of 1994 would harmonize sanctions for chemical, biological, and missile weapons proliferation, now authorized in

other pieces of legislation; the pending State Department authorization act for fiscal year 1995

institutes similar sanctions for nuclear proliferation.) The actual application of sanctions is left to

considerable executive branch discretion. One option would be to leave the president less discretion

in choosing, deferring, or waiving sanctions.

Rigid requirements, however, risk forcing the

president’s hand in cases where more subtle action

might have a greater effect on nonproliferation

goals. Too much discretion, on the other hand,

risks avoiding diffilcult choices and sending inappropriate messages to those who foster proliferation.

A compromise option would be to permit the

flexibility requested in the Clinton administration

draft EAA, but to accompany it with more explicit

provisions for accountability to Congress about

the costs and effectiveness of sanctions imposed

or the reasoning behind deferring or waiving

them.

 Multilateral Control Arrangements

Since there are very few technologies useful to

proliferant weapons programs that the United

States produces uniquely, international cooperation among potential suppliers or transshippers is

essential to effective export controls.

Issue: How can the United States keep a low

level of international consensus on the transfer

of conventional military technologies from undermining current agreements on nonproliferation of weapons of mass destruction?

With the end of the Cold War, the membership,

targets, and listed technologies for the Coordinating Committee on Export Controls (COCOM,

formerly a Western arrangement for denying

technology to Communist nations) are undergoing significant changes that must be multilateral y

negotiated. With technologies applicable to weapons of mass destruction already addressed in other

multilateral export control regimes, the COCOM

successor regime will most likely attempt to regulate the transfer of technologies for developing or

making conventional weapons. Consensus will be

difficult to reach, both within the United States

and among the international participants, about

what technologies should be controlled, and for

what reasons.

Option: Separate COCOM succession from regimes for nonproliferation of weapons of mass

destruction.

The nonproliferation regimes dealing with

weapons of mass destruction (and missiles), for

which considerable consensus has already been
Chapter 1 Summary | 5

painstakingly built, should not be mixed into controversies over revisions of lists formerly controlled by COCOM for other purposes.

Issue: How can coordination among members

of multinational nonproliferation export control regimes be enhanced?

Option: Promote an information sharing network.

Communications and information tools cannot

subsitute for a genuine willingness to cooperate

among adherents to export control regimes. Given

such willingness, however, they could make it

easier to implement cooperation. The United

States has instituted a pilot program for a shared

computer network among Nuclear Suppliers’

Group (NSG) members (the NSG is a group of nations that has agreed to common export control

policies for nuclear technologies and dual-use

technologies applicable to nuclear programs).

Such a network would offer a variety of opportunities for increased coordination among the nuclear suppliers. In agreeing to multilateral controls on dual-use technologies, the NSG members

also agreed to avoid undercutting each other’s decisions by informing one another when they deny

export license applications for the listed items.

Timely dissemination of this information would

allow each supplier to consider its own export decisions in the light of those made by any of the others. Once refused an export license in one country,

a potential buyer would not have a chance to find

another supplier in another country even if that

country did not have independent reason for suspicion about him. License denial information, as

well as some of the other kinds of information described below, could be especially useful to governments without the extensive export control infrastructure and intelligence resources of some of

the larger members of the NSG.

Option: Extend the NSG database network idea

to the other export control regimes.

Such a network could be extended to members

of the Australia Group (chemical and biological

weapons) and Missile Technology Control Regime (MTCR) as well, since there is already a

large overlap in membership among those groups

and the NSG. This step would be most useful in

combination with agreements in those regimes to

report export denials, as the NSG members do.

Such agreements, however, will not be easy to obtain.

Option: Expand international reporting to approvals as well as denials.

With this wider range of data about exports

with weapon program potential, all NSG (or other

regime) members would have a better chance of

discerning trade patterns that might help identify

suspicious end-users or possible diversion paths.

Because of fears of revealing proprietary data of

use to competitors, however, regime members

may resist revelation of their approved licenses. 1

Should the United States decide to seek such reporting, it may need to test that resistance through

the leadership both of exhortation and of its own

example. Even the expenditure of considerable

diplomatic capital with other regime members

may not be enough to bring about this degree of

cooperation.

Option: Increase intelligence sharing.

Whether by means of a networked database or

through other means of communication, sharing

intelligence data about unscrupulous suppliers, buying and financing operations, questionable agents, and suspicious end-users is an

important means by which supplier groups

can coordinate their export controls. Shared intelligence could, for example, help members of

the NSG make better informed licensing judgments by giving them more information about

how prospective buyers measure up against the

criteria that the NSG has agreed to take into account in licensing decisions.

1AS noted above, some firms might be fearful that Confidential (but still legitimate market information might he revealed to c(~nlw’titers if

all sales were reported. Even If the supplier-group(mp data were not In the public d(m)ain, there w (mid be the p)ssibill[y that participating g(wemnwn[s would leak in fom)atl(m to their OW n cmm[~ fimls.
6 I Export Controls and Nonproliferation Policy

In some situations, national intelligence agencies having trusted relationships with one another

may be able to share secret information. Amongst

the large and diverse sets of nations making up the

nonproliferation supplier groups, however, the

continuous, direct sharing of classified information seems unlikely. What seems more feasible is

the production and dissemination of analyses

based on open sources. It may also be possible to

develop open-source evidence for facts that might

originally have been indicated or discovered by

secret means.

An option to consider is to provide government

support for nongovernmental, open-source database and analytic projects. One means of support

for such efforts is to contribute grants or award research contracts to the private institutions carrying on such projects. Whether the information

shared multilaterally comes direct] y from the U .S.

government, or whether it comes from private

U.S. institutions, there is some risk that it will be

perceived as a U.S. tool for manipulating international opinion and decisions to serve unilateral

U.S. interests. This risk imposes a need for considerable tact and diplomacy in the ways in which

the United States attempts to persuade other nations to act on the information provided.

Option: Support development of former Soviet

Union states’ administration of export controls.

The effectiveness of global export controls will

be greatly weakened unless Russia and the other

former Soviet states join and effectively participate in the full set of western nonproliferation control regimes: NSG, Australia Group, and MTCR.

Some progress has been made in this direction

with Russia already in the NSG, vowing to become a de facto member of the MTCR, and promising to adhere to Australia Group guidelines. The

other newly independent states should also be

brought into the nonproliferation regimes. These

nations also need to develop effective export control systems. The United States has offered several

million dollars in Nunn-Lugar funds for that purpose to each of the four republics retaining Soviet

nuclear weapons, but has reached agreement on

spending the money only with Belarus. Other republics could probably also make use of financial

assistance. U.S. agencies have also been offering

technical assistance in export controls to the former Soviet states.

At the Moscow summit in January 1994 Presidents Clinton and Yeltsin signed a joint “Memorandum of Intent” on “Cooperation in the Area of

Export Control,” saying their governments intended to cooperate in “any or all” of six areas intended to improve nonproliferation export controls and that they “may” establish expert working

groups to carry out their intent. At this writing, it is

too soon to tell whether these actions will be taken

or whether they will result in concrete improvements in the Russian control system.

Option: Seek greater cooperation from developing countries.

Newly industrializing countries that are not

members of the established export control groups

are also becoming possible sources for proliferant

weapon programs.

In its draft for the EAA of 1994, the Clinton administration proposed that (individual validated)

license-free exports of controlled items could be

permitted to and among members of a multilateral

regime. More convenient access to dual-use

technology items might serve as an incentive for

some developing nations to join supplier regimes.

On the other hand, were these nations so well-behaved in the first place, license approvals probably would have been forthcoming anyway. A disadvantage to removing validated license

requirements is that the United States would lose

the opportunity to judge on a case-by-case basis

whether the recipient country’s own export controls were strong enough to prevent retransfer of

some items. Instead, it would have to arrive at a

general judgment to that effect. Of even greater

concern is that, if the emerging supplier is itself a

proliferation threat, it might acquire easier access

to items needed for its own weapon programs,

even as it helped control supplies to others.

Other steps aimed at bringing more nations into

export control cooperation have been proposed.

While worth exploring, they may be difficult to

sell to some developing nations, who have per-
Chapter 1 Summary | 7

ceived export controls more as a means of economic discrimination than as a nonproliferation

tool. In attempting to better inform developing nations about the purposes and effects of export controls, the industrialized countries would have to

take care to avoid the appearance of simply dictating their own views of the proliferation problem

and how to deal with it.

OPTIONS FOR AMELIORATING

INDUSTRY BURDENS

From the point of view of the effectiveness of export controls, it is desirable to have exporting

companies see the system as fair and just, so that

they will have every incentive to help make the

controls effective—for example, by reporting

possible illicit purchase attempts. From the point

of view of U.S. competitiveness in international

markets, it is desirable to place the least

constraints consistent with national security on

exporting firms.

I List Making

Issue: How can the United States protect its exporters from competition from firms in countries with less stringent export controls?

Option: Promptly remove controls from items

that are availablefrom other countries in similar

quality and quantities.

A policy of attempting to control only items

that were not available from other sources would

lead to a shorter list and might result in fewer

losses of business from U.S. companies to foreign

competitors. Proponents of unilateral export controls argue that this is tantamount to knowingly

selling a gun to a criminal just because he may

have been able to buy it from someone else. Some

exporters may feel that they should not be denied

licenses to sell to such users, on the ground that

someone else will anyway. Most, however, would

not wish to do business with users trying to build

weapons of mass destruction. It is not the loss of

these relatively rare sales that exporters fear, but

rather that the export licensing process itself

causes them to lose legitimate business to foreign

competitors at the same time that it fails to keep

the proscribed items out of the hands of proliferants.

Other countries may be more willing to control

new items (or exports of currently controlled

items to newly identified end-users) if the United

States demonstrates its own will to do so first.

Thus, proposals to limit U.S. export controls to

multilaterally controlled items have included provisions for at least temporary impositions of unilateral controls to allow attempts to reach multilateral consensus. Putting a legislative limit on the

length of time for which unilateral controls can be

imposed does carry a risk: other nations whom the

United States is trying to persuade to follow suit

can just stall negotiations until the statutory limit

on the U.S. controls runs out.

Those in favor of retaining some discretion for

the government to maintain some unilateral controls argue that in some cases the United States

should set a standard of leadership behavior, what -

ever else some other nations might be doing. In

taking a principled stand against assisting the

spread of weapons of mass destruction, the United

States may help bolster international norms

against such proliferation, protect U.S. companies

from the embarrassment of being identified with

proliferation activities, and possibly win over

other supplying nations to its position.

Option: Reduce the size of the export control list

to narrow the scope of its purposes.

After the initial reforms of COCOM controls

with the end of the Cold War, the Department of

Commerce (DOC) Office of Export Licensing

went from handling over 100,000-125,000 export

license applications a year to about 24,000 in 1992

and 25,000 in 1993. Many of the remaining license applications concern items controlled for

purposes other than the nonproliferation of weapons of mass destruction. Most of the items remaining on the (formerly COCOM) “national security”

control lists relate to possible conventional military applications. Items controlled because they

may be used in making weapons of mass destruction or missiles are largely the subject of
8 I Export Controls and Nonproliferation Policy

negotiated international supplier agreements;

the option of narrowing the scope of controls

does not have much applicability to this area.

The COCOM lists were designed primarily to

slow Soviet progress in a broad range of military

technologies. The fact that they might also slow

the development of the Soviet civilian economy

was seen as, if anything, an additional national security benefit of the regime. COCOM’S original

purposes became largely (though perhaps not entirely) obsolete with the breakup of the Soviet

Union.

A new set of goals for controls over dual-use

technologies related to conventional weapons has

not yet emerged. Late in 1993, COCOM members

agreed to abolish the organization at the end of

March 1994 and to replace it with a successor regime. As COCOM formally ended, however, the

goals and procedures of that successor regime remained unclear. Some have proposed that the

United States initiate an explicit new nonproliferation regime aimed at limiting the spread of advanced conventional weapon technologies. Such

a policy, aimed at keeping particular types of

conventional weapons out of reach of many nations, would require a different export control

strategy than one directed at maintaining a Western military advantage by restraining the technical

development of a single large military-industrial

complex. In the absence of clear-cut opposing

blocks of allies, there is bound to be less consensus about who should be the targets of such a strategy.

2 It is therefore likely to be more difficult to

sell the strategy multilaterally than it was to persuade states to participate in the original COCOM

regime.

Issue: How can uncertainties and costs stemming from “EPCI” rules be reduced?

The Bush administration’s Enhanced Proliferation Control Initiative (EPCI) and certain subsequent legislation led to Export Administration

Regulations requiring individual validated licenses (IVLS)

3 for almost any items that the exporter “knows” or “is informed” might be used in

any way in a chemical, biological, or missile

weapon program. In December 1993 the Commerce Department issued further guidance specifying that the rule would apply to items destined

to be directly employed in such a program. For nuclear weapon programs, the rule is stronger: a license is required for any item that the exporter

‘*knows or has reason to know” will be used directly or indirectly in such a program.

Industry representatives, at least prior to the

December 1993 clarifications, argued that the

EPCI rule unnecessarily hinders their economic

performance by:

■

✘

■

●

requiring virtually all exporters to establish

costly programs to find out whether their customers are involved in a proscribed activity,

imposing unilateral controls on U.S. exports of

items that are likely to be available to proliferant programs from foreign sources anyway,

burdening honest exporters with regulations,

when illicit exporters will not apply for licenses

anyway, and

because of uneven information among exporting firms, giving honest exporters who are

nonetheless ignorant of export control requirements an unfair economic advantage over their

better informed competitors.

Option: Eliminate the EPCI rule

The Congress could eliminate the EPCI rule by

legally requiring the DOC to consolidate its dualuse or “commercial” export controls into a single

list that fully enumerates all the products for

which an export license is required and all the

countries and specific end-users as well. This

would greatly simplify the exporting companies’

2mem is more international con5en5u5 about re5tm1ning the general spread of weapons of mass destruction than there is a~)ut n~aintaining

the military superiority in conventional weapon technologies of the advanced industrial nations.

~T() ~)blain ~ IVL, the exp)~er must fi]e an application with the Department of Commerce stating the items to be shipped, their value, me

buyer, and the end-user.
Chapter 1 Summary | 9

job in deciding whether a license application was

necessary and whether it was likely to be approved.

Elements of this proposal exist in the current regimes. The NSG, the Australia Group, and the

MTCR all center on agreed, published lists of

commodities. On the other hand, the regimes do

not require the members to agree in advance on

who all the controlled countries and end-users

may be. Instead, they provide agreed criteria for

deciding whether an export should go forward.

Publishing lists of all suspect buyers and users

has drawbacks, including risking the compromise

of intelli.gence and law enforcement data. It also

eliminates the government ability to control exports that pose an imminent proliferation threat

even though they are not on a published control

list. These drawbacks must be weighed against the

advantages of having better informed legitimate

exporters.

Option: Maintain the EPCI rule, while attempting to assure its fair application.

Defenders of the “knows or has reason to

know” rules argue that exporters who may be trading with a proliferant end-user find it too easy to

look the other way, or to fail to report what they

know, as long as their own particular export is not

on a specific control list. More important, the rule

gives the government a safety net by allowing the

application of export controls when it learns about

a pending transaction that risks helping a weapon

program, but which is not explicitly covered by

the current Commerce Control List. Finally, many

companies would themselves prefer not to deal

with end-users developing weapons of mass destruction, whether their products are critical to

those programs or not. Procedures for the government to inform them of the character of their buyers may well save them from public embarrassment

later on .

The DOC’S December 1993 guidance should

assure U.S. exporting firms that they do not have

to worry that they will be subjected to extraordinary demands to probe deeply into the character of

end-users of relative] y innocuous products. Advocates of a “knows or is informed rule” point out

that the stronger form of the rule (“has reason to

know”) has existed for some time for nuclear exports and in other legal areas. The judicial system

has not generally permitted unreasonable interpretations of what constitutes a “reason to know.”

In practice, no firms have been penalized for having failed to apply for a license for something that

they are alleged to have known would be used in a

banned project. On the other hand, questionable

sales have been prevented by the government informing exporters that transactions with certain

buyers would require an IVL.

Option: Change the “knows or is informed” rule

to just an “is informed” rule.

Under this option, the government would not

expect companies to “know their customers” and

apply for licenses in dubious cases. It would, however, retain the legal ability to stop risky transactions about which it had obtained intelligence by

informing the exporter of a license requirement,

even if it could not expect companies to report

the “red flags” that may indicate suspicious

customers.

Option: Maintain the rule, but publish a specific

list of controllable items.

The government would generate a separate

control list of products or technologies that, although not listed as requiring export licenses,

could be “directly used” in proliferant programs.

The exporting companies would then be responsible only for knowing or having reason to know

whether recipients of those particular items were

engaged in illicit activities. The firms, if in doubt,

could ask the government for advisory opinions

on prospective buyers. The government could

also make the companies’ job easier by publishing

those advisory opinions about particular end users

so that other firms could be forewarned. This latter

measure would carry some risk of alerting illicit

procurement agents the the U.S. government Was

aware of their activities.

I Licensing Administration

Issue: How can exporters be given licensing decisions in time to avoid losing sales?
10 I Export Controls and Nonproliferation Policy

Option: Place statutory limits on licensing processing times.

The Clinton administration’s draft EAA proposes assuring that nearly all license applications

would either be resolved or referred to the President within 90 days of filing. For reviewing agencies, the default decision is approval if the deadlines for objections are not met. There seems to be

no reason why, with sufficient resources, current

license decision deadlines could not be shortened

to the times proposed in the Administration bill,

or even less, without diminishing the quality of

analysis and review that the license applications

receive. Doing so, however, is likely to cost additional funds that the executive branch has not recently been willing to allocate to export control

management.

Issue: How can the economic costs of export

controls be given appropriate weight in policy

and licensing decisions?

Some U.S. exporters have argued that the government imposes export controls without adequate consideration of the costs they will impose

on U.S. industries. They have proposed, therefore,

that assessment of the costs of controls should be

made an integral part of the export control process. Costs may include:

■

m

■

m

resource and opportunity costs to the government,

sales forgone or denied because of controls,

exporters’ administrative costs in complying

with regulations, and

business lost because of licensing delays or customer perceptions of supplier unreliability.

Current data about the actual costs, direct or indirect, imposed by export controls on specific

U.S. industrial sectors and on individual firms is

not generally available. Estimates used in public

discourse are either anecdotal or based on data sets

not well-designed to provide the needed information.

Option: Require regular economic impact statements for export control policies.

The Clinton administration’s draft EAA states

as U.S. policy:

. . . to ensure that U.S. economic interests play a

key role in decisions on export controls and to

take immediate action to increase the rigor of

economic analysis and data available in the decisionmaking process.

Such a policy could be reinforced by a requirement for regular “economic impact” statements to

Congress attempting to estimate the overall costs

of controls to the U.S. economy as well as their

more specific costs to certain industries. Such estimates should help enlighten a debate now featuring many claims and counter-claims, but 1ittle real

data.

As desirable as such costs estimates may be,

however, it is important to recognize that gathering usable data will require overhaul of the current

DOC license-processing computer system and expenditures on economic research and extensive

exporter surveys. Even after these efforts are

made, the nature of this particular estimating

problem will dictate that many uncertainties still

remain.
Introduction

L

ess-developed nations seeking to produce weapons of

mass destruction (or missiles for delivering them) usually

need to import certain equipment, materials, and technologies. The United States and other countries have instituted export controls on such commodities as a tool of nonproliferation policy. OTA’s report on The Proliferation of Weapons of

Mass Destruction: Assessing the Risks] concluded that export

controls will continue to be a useful nonproliferation tool.

They are unlikely to stop a determined proliferant in the long run,

but nevertheless may buy important time in the shorter term—

time that may be used to bring other nonproliferation tools to bear.

The Export Administration Act (EAA) provides the legislative

basis for U.S. export controls on dual-use items—goods and services with civilian applications that could in principle be used for

military purposes.2

In 1994 the EAA, temporarily renewed in

1992, will expire and Congress must reauthorize it. Virtually everyone involved in export control matters agrees that a new EAA

is overdue. There is less agreement about what the most urgent

problems are and what the best solutions may be. Moreover, the

core issues are likely to remain in contention well beyond passage of a new export control bill.

The initial report of this OTA assessment pointed out that there

are tensions between the goals of effective nonproliferation ex2

, .. export controls

are unlikely to stop a

determined proliferant in

the long run, but

nevertheless may buy

important time in the

shorter term.

2Thc Nuclear Non-Proliferation Act of 1978, however, establishes the basis for control

of nuclear-related dual-use items.

I 11
12 I Export Controls and Nonproliferation Policy

port controls on the one hand and enhanced export

competitiveness on the other. When it comes to

specific proposed reforms of the EAA, however,

the tradeoffs are not completely clear-cut and direct. Some proposed changes in export control

laws and regulations are aimed primarily at

improving their effectiveness. Proponents of

other changes are seeking mainly to reduce the

burdens to industry of export controls and to

reduce barriers to legitimate exports. These

two objectives are not necessarily contradictory:

any given change intended for one purpose may

hinder, have no effect on, or even help pursuit of

the other.

The most desirable export control measures

would contribute to one or both goals (effectiveness and economic competitiveness) and detract

from neither. For example, increasing the resources available to review export license applications might assure both that the applications are

screened in greater detail (possibly increasing the

chances that dangerous exports will be stopped)

and that the review process is sped up (reducing

the waiting time for exporters and their potential

customers). If an option does detract from one

goal while contributing to another, policy makers

will, ideally, evaluate the tradeoff and choose the

more valued goal.

Unfortunately, as will be shown below, this

evaluation does not always lend itself to a clearcut analysis. As a result, the revision of the

EAA is likely to become a focus of strong political controversy both in the Congress and in the

executive branch.

NONPROLIFERATION EMPHASIS

Those whose foremost objective is strengthening

the nonproliferation regimes tend to stress the

benefits of export controls. Citing Pakistan, Iraq,

and others, they point out that in the past, ineffectiveness of export controls has resulted not just

from the inherent deficiencies of the tool, but from

failures by the United States and other nations to

apply it rigorously. They argue that, given the horrendous consequences of the spread of weapons of

mass destruction, even partially effective controls

may help avoid catastrophic future costs. (Some

would also argue that we have a moral imperative

not to contribute to proliferation, whatever others

might be doing.) They also point out that controls

serve some purposes beyond limiting access to

potentially dangerous goods and technology. By

creating a record of what is sold to whom, controls

provide information to help monitor proliferation.

They also serve to indicate a government’s determination to oppose proliferation: a state that decries the spread of weapons of mass destruction,

but does nothing to prevent its own citizen from

helping those who seek to acquire them, loses

credibility y.

Those stressing the benefits of controls, then,

argue that some economic sacrifices (in the form

of reduced exports) are worth the price. They say

that if exporters are burdened by controls, the burdens should be seen as part of the price of doing

business with potentially dangerous commodities. Moreover, some nonproliferation advocates

question whether the business lost because of nonproliferation-related controls is in fact very significant to the U.S. economy: few solid figures are

available to prove that it is. Presented with proposals to ease the burdens to industry imposed by

export controls, these advocates are more likely

than others to perceive dangers that those proposals will decrease effectiveness of controls.

Within the school of thought emphasizing the

benefits of export controls, there is some division

between those who would apply nonproliferation

controls uniformly toward all potential proliferants and those who advocate singling out “rogue

nations” that are perceived to pose the greatest immediate threats to international stability. Those favoring a more universal policy argue that weapons

of mass destruction are dangerous no matter

which states are acquiring them. Therefore, proliferation on the part of states considered friendly to

the United States should be opposed as vigorously

as that by states thought to be more hostile. First,

the international consensus needed to fight proliferation is much harder to mobilize in a world of

double standards, in which proliferation is tolerated in some states but not in others. Second,
Chapter2 Introduction | 13

states are not likely to agree on which states

should be considered particularly unfit to possess

weapons of mass destruction, making it hard to

reach consensus on measures that should be imposed against regime violators. One state’s ally

may well be another state’s “rogue.” Third, as was

shown in the case of Iran in the late 1970s, or Iraq

in the late 1980s, today’s friends can turn into tomorrow’s adversaries. Arsenals amassed when bilateral relationships are favorable may pose serious diplomatic and military problems should the

political situation change.

In contrast with those favoring a universal approach to nonproliferation strategy, others stress

that such weapons become a concern primarily

when they are acquired by ‘brogue” or “outlaw”

states that are particularly hostile towards the

United States or to international security. In this

view, "weapons don’t kill, nations do”: it is more

important to deal with the particular dangers

posed by such nations than it is to enforce global

nonproliferation norms. From a United States’

point of view, today’s “rogue’* states include Iran,

Iraq, Libya, and North Korea (but not India, Pakistan, or Israel).3

Since these states generally already have

strained relations with Washington, little would

be lost by applying highly coercive policies—

such as more restrictive export controls and stronger economic sanctions—that threaten to further

disrupt ties to the United States. As with the universal nonproliferation approach described

above, this approach views preventing the proliferation of weapons of mass destruction, at least to

rogue states, to be one of the highest national priorities. Unlike the universal approach, however,

this approach would devote less attention to nonproliferation efforts targeted against friendly

states.

Table 2-1 contrasts the export control policies

implied by these two approaches as well as a third

approach, emphasizing enhancement of exports,

described below. The views here do not, of course,

encompass every individual with a role in the export control debate. Other positions between the

ones starkly differentiated here are also possible

and likely.

EXPORT ENHANCEMENT EMPHASIS

Those who worry most about the economic costs

of export controls tend to emphasize the ineffectiveness of unilateral controls and the spreading

availability of dual-use technologies. They are

likely to give less credence to arguments about the

utility of partially effective controls and the value

of the United States’ continuing to set an example

of more stringent controls when other suppliers

fail to cooperate quickly. They are more likely to

perceive measures reducing the burdens to industry of export controls as increasing the effectiveness of controls as well. But when a tradeoff does

seem necessary, they argue, the government

should make explicit evaluations of not only the

foreign policy benefits of controls, but also of

their economic costs. 4 For further discussion ‘f

the arguments about the costs and benefits of nonproliferation export controls, see chapter 4 and appendix A of this report.

Table 2-2 lists the criteria that a policy satisfying proponents of the contrasting approaches to

export controls would have to meet-criteria that

3

President clinton's Assistant for National Security Affairs refers to "backlash states," naming Cuba as well as North korea, Iran, Iraq, and

Libya. See Anthony Lake, “Confronting Backlash States,” Foreign Affairs, vol. 73, N(). 2, March/Apr]l 1994, pp. 45-55.

4Analysts from the Brookings Institution have expressed a third point of view: export controls are increasingly ineffective and should be

drastically reduced, but in their place the United States should try to build an international consensus on achieving greatly increased tran.sparen-

(y in international trade and in national industrial activities. This might mean that reduced exp)rt contro/s would be replaced by increased export reporting requirements, plus intensified governmental and other monitoring aimed at exposing proliferant programs to international sanctions. See testimony of Janne Nolan and John Steinbruner before the Subcommittee on Economic Policy, Trade, and Environment of the House

Committee on Foreign Affairs, on June 9, 1993 and June 23, 1993, respectively. Hovever, hcy(md those two short prescntati(ms, further analy -

SIS of this appr(mch dtws not appear to ha~ c been carried (wt or published.
14 I Export Controls and Nonproliferation Policy

Policy issue —

Priority to

nonprolifefation

policies

Universality of

nonproliferation

policies

Unilateral U.S.

export controls

Using export

controls as

economic

sanctions

Nonproliferation emphasis —

Few If any foreign policy priorities

should be higher

Apply universal rules to all potential proliferants, whatever their

current politlcal stance, today’s

“safe” nation may become tomorrow’s “rogue”

Are acceptable, even when not

effective in blocking proliferation ”

■ Nuclear Nonproliferation Act

requires U.S. not to contribute

to proliferant nuclear weapon

programs, whether other supplier nations door not,

● U S leadership often necessary to win export control

cooperation from other nations

When any dual-use items (includ

ing those not normally controlled

for proliferation reasons) exported to a given country have

potential to be diverted to weapon programs, all such transfers

should be denied, the economic

handicap borne by the target nation may help persuade It to end

weapon-of-mass-destruction

programs

SOURCE : Office of Technology Assessment, 1994

would maximize both control effectiveness and

ease of compliance. Although the criteria do not

appear to be logically incompatible, finding the

appropriate tradeoffs among them is a difficult policymaking task.

The primary focus of this report discussion of

policy options is on measures that might increase

the effectiveness of U.S. export controls. Where

relevant, however, the possible consequences for

exporting companies are also considered. An

additional set of options deals with reducing the

“Rogue Nation” nonproliferation emphasis — .- —.

Nonproliferatio is the

highest priority regarding

“rogue nations” that

threaten regional or global stability: other goals

may rank higher with

friendly nations

Focus nonproliferation

policies (and export controls) on rogue nations

Same as nonproliferation

emphasis, but to be applied selectively to rogue

nations and their

suppliers

Silmilar to nonproliferation

emphasis, but to be applied only to rogue nations, such as those

Identified by the United

States as supporters of

International terrorism

Export enhancement

emphasis

Nonproiferation needs to be

weighed against other national objectives, particularly

global economic competitiveness

May favor either a universalIst or a “rogue” approach, as

long as near complete cooperation among suppliers exists

Unilateral controls are lneffective, economically costly,

and should be avoided, exceptions may be made If embargo against target nations

IS complete, not partial

Broad-based export controls

intended to punish or coerce

a state are generally ineffective

but if applied should be

as part of an expicit complete embargo of the target

nation’s economy, export

control laws should be applied only for their explicitly

authorized purposes, not as

ad hoc sanctions

—

burdens export controls may place on exporting

companies.

Chapter 3 of this report discusses the U.S. export control regime as it was configured early in

1994. This configuration was the baseline from

which Congress would revise the Export Administration Act, which governs U.S. export controls

on dual-use commodities.

Chapter 4 discusses the problem of assessing

the benefits and costs of export control measures.

It outlines the factors that determine how effective
Chapter 2 Introduction |15

Regime goal Criterion

Effective control lists

Effective Iicensing administration

Effective enforcement

High degree of multilateral support

Minimum burden on exporters

■

■

■

■

●

●

■

●

●

●

●

●

■

■

■

■

■

■

■

■

●

Timely and thorough I[st-construction process identifies the right goods,

technology, and users for controls

Policy makers have flexibility to adjust to changing circumstances

Licensing process feeds back Information about buyer behavior that would

be useful to the Iist-making process

Licensing decisions based on adequate information

Licensing decisions based on the best available judgment

Licensing offices have adequate resources

Licensing process IS run efficiently

Exporters kept well informed of suspect end-users

Adequate investigation and prosecution of exporting violators

Regular monitoring of end-uses

Agreement among major suppliers on controlled commodities and users

No undercutting of license denials by other governments

Effective enforcement

Policies explicitly balance nonproliferation goals and economic competitiveness goals

Commodities controlled kept to a minimum

Foreign competitors do not undercut controls

Applicants have access to lists of controlled items, countries, and end-users

Licensing decisions are rapid

End-user controls are not so onerous as to deter Iegitimate buyers

Licensing decisions are consistent, fair, and subject to adequate appeals

process

Licensing process protects proprietary Information that could be useful to

competitors

SOURCE Off Ice of Technology Assessment 1994

particular export controls may or may not be. OTA

has previously observed that the effectiveness of

export controls in slowing proliferation will vary

with the characteristics of the weapons of concern,

the capabilities of the target countries and

programs, the controllability of the designated

commodities and technology, the degree of international cooperation, and the quality of

enforcement. In some circumstances, they may

do little to stem proliferation; in others, they

may impose significant obstacles and delays.

Chapter 4 of this report also describes the potential costs of imposing export controls and

points out the difficulty of reliably quantifying

those costs. OTA also pointed out in its earlier report that, besides the costs to the government of

administering an export control system, the affected exporting companies must bear the burdens

of complying with regulations and the possible

loss of legitimate business to competitors who are

less strictly regulated. However, data to reliably

quantify such losses are difficult to find.

Chapter 5 analyzes policy options aimed at

making nonproliferation export controls more effective. The chapter does not attempt to provide a single set of recommendations reflecting

one coherent approach to export control policy.

Instead, it analyzes a range of options culled

from a variety of sources. It categorizes those options according to the phase of the regulatory

process each would affect most:
16 I Export Controls and Nonproliferation Policy

■ the making of lists of controlled goods and Chapter 6 reviews some recent proposals for

technology as well as target countries and orga- easing the burdens that export control laws and

nizations, regulations place on exporting companies. Of par-

■ the administration of export control licensing, ticular interest for this report are the possible con-

- the enforcement of laws and regulations, and sequences (positive or negative) of such measures

● the engagement of international cooperation in for nonproliferation efforts.

making controls effective.
Current

United States

Nonproliferation

Export

Controls 3

s

lowing the proliferation of weapons of mass destruction is

only one of many purposes for which the United States

has established a system of export controls. Table 3-1

shows the range of U.S. agencies administering export

controls, the major legislation underpinning those controls, and

the variety of purposes intended for them (as of early spring,

1994).1 This report focuses on the most controversial type of export controls, those over dual-use items. The Department of Commerce administers export licensing of dual-use items under authority of the Export Administration Act.

Figure 3-1, presenting the sub-categories on the (Department

of) Commerce Control List (CCL), shows the range of dual-use

export controls falling under the EAA of 1979.2 The EAA contains two broad categories of dual-use item control: “national security” (established by Section 5 of the Act) and “foreign policy”

(Section 6). National security controls are primarily those placed

on items formerly in the COCOM3 Industrial List, originally intended to preserve Western technological superiority by reducing

the flow of advanced dual-use technologies from Western industrial nations to the Soviet bloc and other Communist nations.

Despite their obvious national security implications, controls

over items that might be used to make weapons of mass destrucI For additional descriptions of the establishing laws, see the first report of this OTA

assessment, proliferation of Weapons of Mass Destruction: Assessing the Risks, OTA-

[SC-559 (washington, DC: U.S. Government Printing Office, August 1993).

2

In 1992, this law was extended for 18 months, to end in June, 1994.

3COCOM was the Coordinating Committee on Multilateral Export controls. It was

abolished in the spring of 1994, probably to be succeeded by another, substantially

changed, multilateral export control arrangement.

Slowing the proliferation of

weapons of mass

destruction is only one of

many purposes for which

the United States has

established a system of

export controls.

I 17
18 I Export Controls and Nonproliferation Policy

Agency Legislation

Department of Commerce:

Bureau of Export Administration Export Administration Act

Nuclear Non-Proliferation Act

Trading With the Enemy Act

International Emergency Economic

Powers Act

National Defense AuthorizationAct

Department of Defense

Department of Energy

Department of State:

Center for Defense Trade

Arms Export Control Act

Atomic Energy Act

Nuclear Non-Proliferation Act

Arms Export Control Act

National Defense Authorization Act

Department of Treasury: Trading With the Enemy Act

Off Ice of Foreign Assets Control International Emergency Economic

Powers Act

Nuclear Regulatory Commission Atomic Energy Act

Nuclear Non-Proliferation Act

Items or countries

National Security Controls (COCOM)

Nuclear Referral List

Embargoed countries

Iran / Iraq, MTCR

Defense articles and services

Nuclear technical assistance and

subsequent arrangements

Nuclear-related dual-use items

U.S. Munitions List defense articles

and services

Nuclear weapon and design

equipment

Chemical weapon agents

Biological weapon agents

MTCR

Various prohibited transactions

Nuclear power generation, nuclear

material, and fuel cycle equipment

and technology

Note that this table only identifies the major departments with legislated responsibilities for administering the export control licensing. It does not list all

the many bureaus and interagency groups that play a variety of jurisdictions and roles in managing the whole export control process

SOURCE Office of Technology Assessment, 1994

tion were grouped in the EAA in the Section 6

“foreign policy” category. Controlled in this latter

group are the items on the Australia Group (chemical and biological weapons) and Missile Technology Control Regime (MTCR) lists.4 Nuclear exports are controlled under authority both of the

EAA and of the Nuclear Non-Proliferation Act of

1978. (See figure 3-2 for further detail on nonproliferation portions of the CCL.) Miscellaneous

other controls, not directly related to proliferation, fall under the rubric of foreign policy.

Many industry complaints about the economic

burdens of export controls have arisen from

cases concerning these other foreign policy

controls, as well as COCOM controls, rather

than nonproliferation controls.

~e MTCR began as an informal agreement among coordinating countries to control goods relevant m missile manufacture; the United

States implemented these controls administratively. Amendments in 1990 to the EAA, made in a section of the National Defense Authorization

Act for that year, provided a speeific U.S. legislative basis for missile technology controls.
Chapter 3 Current United States Nonproliferation Export Controls I 19

International Industrial List (CoCom)

Critical militarily-related technologies

Crime Control and Human Rights

Crime control and detection instruments and equipment

controlled for human rights purposes

L

Regional Stability

Certain sensor and navigation equipment and technologies

controlled for regional stabMy reasons

Antiterrorism

Complete embargoes to Cuba, North Korea, Iraq, Libya;

licenses for various commodities to Syria and Iran

Embargoed Countries

Commerce and Treasury administer embargoes against Hati,

Montenegro, North Korea, Serbia, and Cuba

Libya

Reexport of U.S. goods from third countries, except for certain

commodities

1

[ w

Supercomputers

Exports require safeguards to prohibit access by CoCom-proscribed

nationals and any users revolved in strategic or proliferation activities

that could be detrimental to U.S. interests.

L

d South Africa

Embargo on arms and police equipment

7

Weapons of Mass Destruction and Missiles

Chemical, biological, nuclear weapons-related technologies and

materials; missile-related items (See expanded list, fig. 3-2)

The Department of Commerce administers a variety of dual use commodity, technology, and software export controls, on/y some

of which relate directly to weapons of mass destruction The Commerce Control List (CCL) IS categorized by some 430 Export

Control Classifications Numbers (ECCNS). The ECCNS do not correspond one for one to sing/e commodity technology or

software items m some cases an ECCN covers on/y a sing/e narrow/y defined item, but in many cases multlple related items fall

under the same ECCN. The reason for control of each ECCN category may be single or multlple (e g , for both National Security

and Nuclear Proliferation) but the reason(s) /@cd may m fact apply on/y to some subset of iterns within the category

SOURCE Off Ice of Technology Assessment 1994
20 I Export Controls and Nonproliferation Policy

Biological (Australia Group)

Items Target countries

Certain dual-use equipment; For biological agents, all

biological agents, related except Canada;

technical data, or any other For others, list of countries in

commodity that exporter knows Supp. 5, Pt. 778, EAR

will be used for BW in listed

Chemical (Australia Group) L

Items: Target countries

54 chemical precursors and For precursors, all nonrelated technical data; certain Australia Group countries;

other dual use equipment to For others, list of countries in

listed countries; any other Supp. 5, Pt. 778, EAR

commodity that exporter knows

will be used for CW in listed

countries

Nuclear Referral List (Nuclear Suppliers Group)

Items Target countries

Commodities or related No published lists, but license

technical data that might be reviews closely tied to country’s

significant for nuclear explosive status as member of Nuclear

purposes or that exporter Non-Proliferation Treaty.

knows (or has reason to know)

will be used for nuclear-weapon

related purposes (e.g. making

special nuclear materials

without international

safeguards ).

Missile Technology Control Regime

Items Target countries

Specific items related to use in For listed items, all countries

missile programs. except Canada.

Any other commodities or For others, listed missile

related technical data that programs, EAR Supp. 6

exporter knows will be used in countries, or programs in nona missile program MTCR that exporter knows to

involve missiles

SOURCE office of Technology Assessment, 1994
Weighing

Benefits

and Costs 4

A

s the first report of this OTA assessment pointed out, the

risks attached to the proliferation of weapons of mass destruction are considerable. Advocates of strong export

controls point out that the costs of proliferation may include thousands or millions of lives, billions of dollars of property destroyed, or, at a minimum, billions of dollars paid for military preparations to deter or do battle against owners of such

weapons. Therefore, if export controls could be shown to be effective in preventing proliferation, they might be judged well

worth the economic burdens they might place on the national

economy or individual exporters.

ASSESSING BENEFITS

The great majority of the world’s nations have signed agreements] recognizing that the further spread of nuclear, chemical,

and biological weapons would be dangerous to international security, and should be opposed. The signatories to these treaties

have also agreed that those possessing the wherewithal to produce

such weapons should not help other nations do so. The majority of

nations able to supply goods and technology needed for producing the weapons have agreed to control exports from their territories as a nonproliferation measure. Implicit in these agreements

is the belief that export controls on at least some items are a

useful nonproliferation tool.

In a world where all the materials, tools, and technology needed to develop and produce weapons of mass destruction (or mis-

] I. e., the Nuclear Non-Proliferation Treaty (NPT), the Biological Weapons Convention (BWC), and the Chemical Weapons Convention (CWC).

The majority of nations

able to supply goods

and technology needed

for producing the

weapons have agreed

to control exports from

their territories as a

nonproliferation measure.
22 I Export Controls and Nonproliferation Policy

siles to deliver them) were readily traded, acquiring the weapons would be cheaper and the time to

get or develop them shorter. But how much cheaper and how much shorter? The answer to that question varies widely from country to country, as well

as from one type of weapon to another. As noted

above, several key factors affect export control

effectiveness: 2

the nature and level of technical sophistication

of the weapon sought,

the state of industrial and technical development of the target countries,

the controllability (or degree of general availability) of dual-use items (those with both civilian and military applications),

the degree of cooperation among all the relevant

exporting nations, and

the degree of success in monitoring and enforcing of controls by each cooperating nation.

The Technology Variables

The ability of export controls to block access to

needed goods and technology depends strongly on

the type of weapon being pursued. So too, does the

proliferant’s ability to develop alternatives or

“work-arounds” to the items it cannot purchase

abroad. In evaluating the effectiveness of export

controls, therefore, it is important not to lump all

weapons of mass destruction together. s

Nuclear Weapons

Export controls have the best chance of effectiveness against nuclear weapon proliferation

(compared to that of other types) because the

processes for producing weapon-usable fissionable materials are difficult and costly. Pakistan, for example, had to abandon efforts to produce plutonium when external assistance ended;

its uranium enrichment program relied heavily on

theft, smuggling, and black market transactions,

frequently in violation of export control laws.4

South Africa, on the other hand, devised a method

of uranium enrichment that relied less on imports

(but still received clandestine foreign assistance). 5 Although it is easier to design and build

a primitive bomb once fissionable material has

been acquired than it is to produce the material,

more advanced designs (improving on size,

weight, and explosive yield) require additional infusions of technology.

Chemical Weapons

Export controls can increase the cost and difficulty of producing large quantities of high-quality

nerve agents under safe conditions. They may also

help keep advanced delivery technologies (e.g.,

chemical cluster bomb designs) out of the hands

of some nations. Nevertheless, controls are unlikely to block a nation determined to produce

chemical weapons. As industrialization spreads

to more countries, so will civilian chemical

technologies that can be applied to weapon-agent

production. Moreover, with environmental,

health, and safety standards rising around the

world, modem chemical facilities are increasing] y

adopting the type of production technology that

formerly had been used only for the most toxic

compounds.

2

For further discussion of key technologies for each type of weapon, see U.S. Congress, office of Technology Assessment, Proliferation of

Weapons of Mass Destruction: Assessing (he Risks, OTA-lSC-559 (Washington, DC’: U.S. Government Printing Office, August 1993) and

Tethno/agies Under/)ing Weapons oj’klass Dcsfrwfion, OTA-BP-ISC- I I 5 (Washingt(m, DC: U.S. G(wemment Printing Office, December

I 993).

‘Ibid.

4SCC Leonard s. SFcIor With Jacqu~]in~ R. Sml(h, /V//(/ear Arnbi/ions: 7“he .Spread o/”Nw/ear weapons, ] 989-) 990 (B(mkkr. CO: westview Press, I 990), pp. 90-91.

5

1 bid., pp. 270-271.
Chapter 4 Weighing Benefits and Costs | 23

To a certain extent, the Chemical Weapons

Convention (CWC) will compensate for the declining utility of export controls: the Convention’s verification measures will constitute a kind

of “post-shipment end-user check” for trade in

precursor chemicals and chemical manufacturing

equipment, since suspicious locations will be subject to challenge inspections. (The Treaty will also

ban the transfer of chemical weapon precursor

chemicals to non-CWC parties. )

Biological Weapons

The basic equipment and raw materials needed to

grow biological warfare agents are in widespread

use for commercial food processing and pharmaceutical purposes. As knowledge of biotechnology spreads, so will the ability to produce large

amounts of agent in small facilities. Export controls are unlikely to be a strong bar to the acquisition of biological weapons.

Missiles

Successful missile export controls will not prevent the countries now suspected of having weapon-of-mass-destruction programs from finding

ways to deliver such weapons. These nations have

combat aircraft that could do the job. Some of

them already have relatively short-range ballistic

missiles. Any of them could also utilize less conventional means of delivery. In addition, most

could probably derive at least simple cruise missiles from small airplanes or unmanned aerial vehicles. Nevertheless, missile export controls can

help limit the spread of such advanced missile

technologies as precision guidance, staged

long-range ballistic missiles, advanced reentry

vehicles, and long-range cruise missiles. A frequently cited case of successful export control action is the blockage of “Condor’* solid-fueled missile technology from Argentina to the Iraqi “Badr

2000” missile program.

I The Cooperation and

Enforcement Variables

Only since 1984 for chemical weapons, and

1992 for nuclear and biological weapons, have

international groups of supplier nations

agreed on a multilateral basis to control the exports of specified dual-use commodities that

might be used to produce those weapons. These

groups include most, but not all, of the major potential suppliers of the items in question. (A significant exception for all three groups is China. )

An important immediate task is to gain the cooperation of the newly independent states of the former Soviet Union.b As industrialization spreads,

more countries become potential suppliers and,

therefore, potential candidates for membership in

the supplier groups. This can be a complicated

problem when one of the targets of an export control regime is also a potential supplier.7

Supplier-group export controls can be useful

even if all possible suppliers do not adhere fully to

them. First, most nations and companies do not

wish to contribute to the proliferation of weapons

of mass destruction. The information shared by

multilateral export control groups helps their

members identify potential misusers of their products, and thereby lets them avoid inadvertent involvement in such programs. Second, in an environment of broad international consensus that

certain kinds of exports should be controlled,

there is a greater chance that pressure of various

kinds can be brought to bear on the few nonparticipants to limit or end their offensive behavior.

Even with nominal international agreement

on export controls, however, there has been

wide variation in how the controls are interpreted and enforced by each nation. First, the
24 I Export Controls and Nonproliferation Policy

criteria for withholding export licenses are subject

to the judgment of each state’s licensing authorities.8 For example, Russia, although not a member of the Missile Technology Control Regime

(MTCR), had agreed to abide by its restrictions on

the transfer of rocket-related technology. At the

same time, it planned to sell both hardware and

production technology for cryogenic rocket motors to India. India and Russia argued that this was

technology suitable only for space-launch vehicles and not applicable to military missiles. The

United States, however, argued that the terms of

the MTCR forbade the transfer of such technology

to a country such as India with a military missile

program.

9 Implementation of the Nuclear Suppliers’ Group (NSG) dual-use export control guidelines (see below) is also up to the discretion of

each member, but the members do undertake not

to undercut transfers refused by other states.

Even if interpretations of export control agreements among the participants were always in harmony, the related laws, implementing regulation,

and administrative practices are unlikely to be

uniform. National export control systems vary

widely in:

■ the degree of detail in legislation and regulations,

■ the administrative resources for managing the

system,

■ the information available to the licensing officials,

D the numbers and skills of customs officials,

■ the degree or lack of corruption in administration and enforcement,

= the resources devoted to enforcement operations, and

~ the legal sanctions available for punishing violators of export control regulations.

Weaknesses in one or more of these factors

offer opportunities for proliferant organizations to circumvent export controls and

smuggle out or divert at least some of the commodities they want. Even so, from the standpoint

of the potential buyer of controlled commodities,

controls that are only partially enforced still present difficulties. First, the buyer has to go to the

trouble and expense of finding a sufficiently unscrupulous seller. Second, even if some items are

available in small numbers from such sellers, the

buyer may need larger quantities than backdoor

deals can supply. Third, he may not be able to obtain the necessary technical services and spare

parts to keep his diverted equipment running.

Fourth, he may have to resort to costlier methods

of production than if he had full access to international markets. Fifth, discovery of one or more illicit transactions may tip off exporting states

about the program for which the purchase is being

made, and thence lead to counteractions.

Much of Eurasia now poses new problems in

the harmonization of export control practices.

First, in the European Union (EU, formerly the

European Economic Communities), the emergence of a truly common market in which most

controls may not be applied to intra-Union trade

will mean that the strength of export control enforcement will depend on the weakest links. That

is, if goods or technology move freely within the

Union from countries with strong export control

machinery to other countries with weaker enforcement, they may leak out of the region to potential

proliferants. As EU negotiations on export controls have proceeded, Germany (with the strictest

current export control regime) had argued for

81n the COCOM ~eglnle, ~em~m refeme~ proP)sed ex~)fis of listed items tt) an administrative headquafiers, ~d any menl~r could veto a

license approval.

IJu s ~)licynl~ers were nl{)re ~oncemed over the ~)tentia] milita~ uti]ity of some of the technology being transferred to India th~ they . .

were over the cryogenic I iquid-fueled motors themselves. In July 1993, Russia agreed to adhere completely with the U.S. interpretation of

MTCR requirements and to withhold the further transfer of rocket motor production technology to the Indian space program. However, much

documentation had previously been shipped. The Russians would also proceed with the sale to India of four of the rocket motors themselves.
Chapter 4 Weighing Benefits and Costs | 25

common regulations as strict as its own; apparently losing that struggle, it has promoted a rule allowing individual EU members to enforce controls that are stronger than the Union’s

regulations. 10

Meanwhile, to the east, most of the republics of

the former Soviet Union still lack effective customs controls over their borders. let alone stringent export control policies for dual-use technologies. This means that commodities that the

nonproliferation supplier groups are trying to control may leak not only from one former Soviet republic to another, but beyond the former Soviet

boundaries as well. 11

In sum, many variables conspire to weaken the

effects of export controls on programs to make

weapons of mass destruction. But to say that export controls are sometimes ineffective is also to

say that they are sometimes effective. Although

some would-be proliferant nations may be able to

work around many supplier controls, others may

lack the resources to do so. Even if it is not possible to estimate the deterrent effect that export

controls may have on the calculations of some

nations deciding whether to pursue weapons of

mass destruction, it is logical to assume that

there is such an effect.

For those states that pursue weapons of mass

destruction in spite of controls, the costs and delays may be important. For example, without export controls on nuclear-weapon related commodities, one can easily imagine that South Africa

could have built dozens of nuclear weapons rather

than 6, and that it might have then been more reluctant to eliminate its arsenal and join the NPT.

To take another example, without the barrier, such

as it was, of export controls, Iraq might have built

nuclear weapons before it invaded Kuwait, dramatically changing the context for operations

Desert Shield and Desert Storm. Denials of foreign technology probably helped slow the Argentine and Brazilian nuclear programs until those

countries were ready to join the nonproliferation

regime. In short, export controls on some items,

even if imperfect, may help buy time that makes a

crucial difference.

The cost and delay that export controls impose

on proliferants is probably impossible to quantify,

or even to estimate qualitatively. Thus policymakers confront a dilemma as they contemplate how to enact and administer an export

control regime: the benefits, while potentially

great, are essentially intangible and long-term,

and accrue to the nation as a whole; the costs,

however, are more palpable and immediate,

and are unevenly imposed across a few firms

and industries.

ESTIMATING COSTS

Like any regulatory regime, export controls impose costs both on the government and on the industries regulated, and those costs can be both direct and indirect. For the U.S. government, the

direct costs are those born by the administering

agencies (see table 3-1 ). Since some officials only

handle export control issues as part of their work,

even the direct costs of export controls to the government are hard to estimate. Moreover, since

limiting the spread of weapons of mass destruction and missiles is only one of many objectives

of the U.S. export control regime, estimating

the cost of nonproliferation controls alone is

also difficult. The indirect costs of export controls to the government may include the following:

● time and attention of high-level officials drawn

away from other nonproliferation and foreign

policy issues,

10see H, Mu]ler ~t, ~],, }-r<)nl ~/a(.~ .~)lecl) t. Wh;(t Angel? T-he Ncb$, ~ernl~n E~por; c~nfr~)l P[)ll(y, PRIF Rcj)l)rts No. 32 (Frankfurt am

Mare, Gummy Peace Research Inst]tulc Frankfurt, January 1994), p. 56. The authors point out, however, that pressures fr(ml Gemxm businesses clalmlng unfa]r disadvantages relative (() their EU c(mlpetitors will result in weakening of Gem~an regulati(ms as well.

I I see foflh~onlino” OTA re~~fl (m [he pr(~lifcra[ion ]mplicati(ms of the breakup {~f the fomler soviet union .5
26 I Export Controls and Nonproliferation Policy

● diplomatic or economic concessions made in

bargaining with other nations for cooperation

on export controls, and

■ damage to diplomatic or economic relations ensuing from imposition of export controls on

foreign nations or of sanctions against foreign

violators of U.S. export regulations.

As will be pointed out below in the section on

“Strengthening Multilateral Controls” (ch. 5),

some policy options for increasing multilateral

cooperation are likely to meet considerable resistance from other members, or from prospective

members, of the international export control regimes. Pursuit of these measures might cost the

United States considerable geopolitical capital,

and might require that other U.S. goals in dealing

with those nations (e.g., promoting human rights

in China) be subordinated to the nonproliferation

goal.

Officials and journalists from some developing

nations have expressed the view that export controls are aimed less at preventing proliferation

than at blocking the diffusion of advanced civil i an

technology from industrialized nations to new

competitors. 12 A biological weapons expert involved in international activities related to the Biological Weapons Convention (B WC) argues that

this view may become a major obstacle to winning

developing nations’ cooperation in possible efforts to add verification measures to that agreement.

]3

In economic terms, the heaviest price for export

controls is paid by the exporting firms whose

products are subject to regulation. Industry representatives testifying before Congress and

elsewhere have complained that current U.S.

export controls hamper their companies’ export competitiveness in several ways.

First are direct costs. The most obvious direct

cost is the loss of business that would have been

permitted in the absence of controls. The government tells companies that they may not make certain sales because doing so would in some way

harm the national interest. The value of export license applications denied gives some measure of

this lost business. There are presumably many

other sales, however, that companies do not bother

to try to make because they have reason to believe

that an export license would be denied.

Another direct cost of export controls is administrative: tracking massive and complex U.S. export regulations and then assuring company compliance imposes time, money, and personnel

costs. In part, the regulations are so complex because they spell out so many exceptions to the

general rules. Nevertheless, exporting companies

need to track the rules and exceptions. In some

cases, smaller companies may find the burdens so

great that they forgo exports entirely.

Company compliance problems may be complicated by the de facto absence of public identification of all controlled commodities and endusers. A “knows or is informed” regulation

requires individual validated licenses (IVLS) for

any exports that might be “directly employed in”

the design, development, acquisition, or use of

missiles or chemical or biological weapons in a

country listed in one of the supplements to the Export Administration Regulations. An exporter

who has even “reason to know” that items or data

might be used directly or indirectly in a nuclear

program must also apply for a license. Such rules

at least to some extent shift regulatory and intelligence-gathering burdens onto exporting companies.

However, the Department of Commerce

(DOC) also offers guidance about what an exportI zAl[hough [hl~ ~>rcep[lon,Ilay ~x i~[, it does not appear to be tx)m (mt by the faCtS. ]n 1992, for exampk, the~approved 1.43 ‘icenses*

representing potential expwts valued at $319.5 million, for the export of items controlled for chemical or bwlogical weapon proliferation reasons; it denied only 24 such licenses, valued at $7.4 million.

13Barbara Ha(ch R{)5en~.ru ~r50na] comnlunica[ion,” Mar. 24, 1994. At present, the BWC has no VerifiCatiOII provisions. Seved na[i(~ns a,

have proposed that a regime of compliance monitoring be added to the Convention.
Chapter 4 Weighing Benefits and Costs | 27

er can reasonably be expected to do to avoid customers who may be engaged in inappropriate enduses. Before December 1993, the “know” rule

seemed to apply to any items going to a proliferant

end-user. In that month, however, the DOC issued

a Guidance statement intended to ease exporter

concerns that the rules might be arbitrarily enforced. 14 It should be pointed out that no company

before or since that guidance was issued has actuall y been penalized for failing to apply for an IVL

while knowing or having reason to know that the

end-user was a suspected proliferant.15

It now remains to be seen whether corporate

concerns about the “know” rule will be assuaged

by the new guidance or not. In the past, companies

have also argued that the “is informed” part of the

rule was unfairly applied, with some companies

being informed that certain buyers were unacceptable and others not being informed; those not informed were then left able to make sales from

which their competitors were unfairly barred.

Commerce officials have acknowledged this

problem of uneven information and said they are

addressing it.

An IVL entitles the exporter to ship a specified

quantity of licensed items to a particular destination for a period of up to 2 years. For some items

and destinations, a company may be able to avoid

applying for an IVL by obtaining a “distribution

license”

. . . that authorizes exports of certain commodities under an international marketing program,

generally to three or more consignees that have

been approved in advance as foreign distributors

or users. This procedure is a special privilege reserved for firms with a thorough knowledge of

and cxpericncc with the Export Administration

Rcgulations, and an internal control mechanis m

to assure strict compliance with the requirements of the license. 16

Although this program may relieve the exporter of

the need to apply for IVLS in many cases, it does

require the license holder to monitor more closely

the behavior of its buyers and of its own compliance with regulations. On the other hand, DOC

officials report that some exporters say their competitive abilities have actually been strengthened

by the additional information that internal control

mechanisms provide to their decision makers. For

the purposes of this report, note that distribution licenses, with very few exceptions, do not

apply to nonproliferation items; therefore,

whatever the cost burdens-or benefit-of

distribution licenses, they cannot be attributed

to nonproliferation controls.

A complete accounting of the direct costs to

U.S. industry of compliance with export control

regulations is not available, but some information

is. A 1992 industry-sponsored survey of 42 large

exporters found that 30 to 40 percent of their exports required IVLS, and that these companies averaged 24 employees and $1.3 million a year each

on licensing and compliance.

17 One large U.S. exporting firm with $14 billion in annual sales and

$4 to $5 billion in annual exports in the early

1990s reportedly maintained a 100-person export

licensing department costing several tens of millions of dollars per year. 1 8

Unfortunate] y, the study’s sponsor, the National Association of Manufacturers (NAM), did not

release any details about the study, such as which

firms were surveyed and what fractions of their

business costs were attributable to export control

compliance. With 30 to 40 percent of their exports

requiring licenses, it is clear that these firms were

I fFor fuflhcr dlscussl[)n of [he “~nc)~” and ‘“reason to know’” ru]es, See below, chs. 5 and ~.

I ~Expofl A~nlln15tra(lon Rcgulatl(ms, 15 CFR \ 773.3 (Jan. 1, 1993 ).

17N:it10niil A5soclat10n” ,)f Manufacturers stln ~, as r~plfled In ]n/crn{l//(jni// 7)-cIdc Reporter, ,Aug. 26, i ()~~, p. ~~~ and cl[Cd b) J. Da\id

R]chardst)n, .$~;~n~ L) L’.,S, li~porr 1)~.~inf cnf[lci (Washlngtt)n. Institute for Intc!matlt)nal Ectmomics, 1993), p. 38, fo(~tnotc” 16.

I ~R1chardson, Ibid,, p. 37; the firm was nt)t named.
28 I Export Controls and Nonproliferation Policy

Total Returned All

Type of exports exported Approved w/o action Denied applications

($17.8 B) ($5.3 B) ($0.812 B) ($23.9 B) —.

All goods and services $640.5 B 2.8% 0.8% 0,1 % 3 7%

Industrial supplies and capital goods $282.1 B 6.3% 1.9% 0370 8 5%

Advanced technology $107.1 B 16.6% 4.9% 0 8% 22 3%

NOTE Many license applications returned without action may have been refiled later and been counted again in the “Approved” column The “lndusrial supplies and capital goods and the “Advanced technology” categories are separately derived and probably contain considerable overlap

SOURCE Department of Commerce and John Sullivan Wilson, “The U S 1982-93 Performance in Advanced Technology Trade”, percentages by

Office of Technology Assessment

not representative of U.S. exporters as whole,

since a much smaller fraction of all exports is subject to licensing (see table 4-l). In addition, as

with the few other studies in this field, there is no

way to determine what portion of the license activity and its costs could be attributed to nonproliferation export controls as opposed to other kinds.

Finally, even in the absence of export controls, companies may find it worthwhile to

monitor the character of their buyers: most

companies would prefer not to contribute to

the violation of U.S. and international nonproliferation norms, and they certainly do not want

the bad press that can come from revelations that

they have done so.

More difficult to measure are the indirect

costs of lost business attributable to export

controls. In at least some cases, the export license

review and approval process seems to have taken

so long that potential buyers have sought other

suppliers in other countries who could deliver orders more promptly. In other cases, the Office of

Export Licensing approves export only with

conditions intended to assure that the items will be

used for stated purposes at stated places. One such

condition is the requirement for a reexport 1icense:

the buyer must agree to apply to the U. S. government if he wishes to transfer the commodity to a

third country. Another condition is sometimes

that the end-user must agree to accept inspections

by U.S. personnel to assure that the items are being used for the stated purpose.

Rather than accept these conditions, buyers

may seek other suppliers in other countries that do

not impose them. Again, in the case of nonproliferation controls, other members of the multilateral

export control groups also require permission to

reexport. Finally, when buyers either are deterred

from ordering in the first place or cancel orders because of licensing delays, the would-be exporter

may lose not only the initial deal, buy any followon orders that might have succeeded it. Although

it is logical that export losses result from these factors, direct, or even indirect, statistical evidence is

hard to come by.

Whatever the burdens of the export control system on industry, it is important to keep in mind, as

noted at several points above, that only some export controls are imposed for nonproliferation reasons (see next section). Several of the most

prominent industry problems have not been

with controls directly related to the means of

producing weapons of mass destruction, but

lgFf)r [he resu]ls of one eff(wt to detect U.S. expwt shortfalls [() other COCOM members, sce Richardson, ibid., pp. 102- I o~. me author

concluded that his research findings did not support the hypothesis that trade with COCOM partners was adversely affected.
Chapter 4 Weighing Benefits and Costs [29

with controls imposed for other purposes. In

these instances, the industry objections have been

not just to the burdens of the licensing process, but

to specific license denials. For example, highspeed telecommunications switching equipment

is on the “national security” list of items requiring

IVLS. Until the end of March 1994, the U.S. government blocked the sale of such equipment to

China on unspecified national security grounds.

Manufacturers argued that they were losing millions of dollars in sales of equipment that the Chinese would either buy elsewhere or end up making

for themselves, thereby frustrating the U.S. export

denial purpose anyway.20

The most ambitious attempt at estimating the

losses attributable to export controls estimated

that national security export controls on dual-use

items to Communist countries cost between $4.5

and $20 bill ion in lost exports in 1989, while trade

sanctions against several other countries cost between $2.4 and $3.1 billion.21 The author of that

study later estimated that for 1993, these controls

may have cost $20 billion, and perhaps as much as

$30 billion, in U.S. exports a year.22 However,

there are many uncertainties in such an analysis;

moreover, projecting the findings of that study

into the future seems questionable, given the end

of the Cold War, the decline in Coordinating Committee for Multilateral Export Controls

(COCOM), the relaxation of controls on computers and telecommunications equipment, and the

collapse in buying power of the former Communist countries. This method also prov ides no direct

way of disaggregating the effects of different types

of export controls on the larger economic picture.

For further illustration of the difficulties of estimating the economic impact of nonproliferation

export controls, see appendix A.

Beyond the immediate effects on individual

company profits, reduced (or constrained) exports

can mean a worsened balance of international payments for the U.S. economy. In terms of dollar

volume of exports, however, the potential impact

of export controls appears to be relatively small—

and declining. Table 4-1 shows that in 1992, the

total value of U.S. exports for which applications

for IVLS were received ($23.9 billion) amounted

to about 3.7 percent of all 1992 exports of goods

and services, about 8.5 percent of exports of industrial supplies and capital goods, and about 22.3

percent of those of one analyst’s estimate of advanced technology exports. (Note that IVLS are

generally valid for 2 years, so the value of the

items in a license applied for in a given year does

not necessarily y correspond to the value of the shipments the exporter intends to make during that

year. On the other hand, other exports, approved in

the prior year, may be shipped during that year. )

The dollar value of license applications either denied or returned to the applicant without action23

in 1992 represented only about 1 percent of total

U.S. exports in that year, while the value of licenses actually denied amounted to about onetenth of 1 percent.

Figure 4-1 shows that both the number of transactions for which an IVL was required, as well as

the value of the items represented, has declined

dramatically since 1989. This decline is due mainly to the relaxation of COCOM controls (see be20SOIIK” also argue that dtmml c}f U.S.-made ]tems may cause a country to develop Indlgencwsly the lcchn(~h~gy that they could not buy

abroad, ha~ ]ng s(~nw potcntlal for creating or fuel mg foreign competitors” f{~r U.S. exporters of those itcms.

~ ] Richardson op. cit., f(wtnotc 17, pp. 96-97. Armmgst countries of prwl iferation concern on the latter list, Iran accounted for the largest

cxp(m sh(wtfalls, cstlmatcd between $1.3 and $1.8 bill l(m.

22 Rlchilrds(~n, “Ec(m(mlic Costs of US Expwt Controls.” Statement before the Subc(mm~ittcc (m Ec(m(m~ic Policy, Trade, and Environment, C(mmut(ce t m Foreign Affairs, U.S. H{mse of Representatives, N(n, 18, 1993.

~ ~Appllcatl(ms may be rctumed to the appllcant wlth[~ut acti(m h-cause they arc incorrectly or Inc(mlpletely filled t~ut, or h>causc the D(X

requires :iddltl(mal Inf{mnatl(m to make a dcc] sl{m. As [he DOC tal I ics I Icensing act i~ Itlcs, resubmitted appl icatl(ms, If appr(wcd or denied, are

ctmn[ed iigiiln under th(lse categories. Thcrcforc, [me fhoulct not asiunw that a l]ccnsc returned with(n]t actl(m represents an cxp(wt that is never

appn~~ cd.
30 I Export Controls and Nonproliferation Policy

1

1

20

00

80

60

40

20

0

.1 16.4 ._—....—.–— I

II 60.7.;

1989 1990 1991 1992 1993

❑ Amount approved Amount denied

+ Licenses processed

80

-J

20

0

The bars in this graph indicate the values of Individual

Validated Licenses approved or denied by the Department of

Commerce m the years shown, whale the line markers (see

right-hand scale) show the combined numbers of licenses

approved or denied. Many license applications each year are

‘“Returned Without Act/on” (RWA) because they are improperly

filled out or because more informatlon IS needed Of the

applications RWA, some may not be refiled while others may

be, the latter are then considered to be new applications and

may enter the counts of those approved or denied Note that

license approvals are 2-year authorizations to export, and that

exporters do not report to the Commerce Department

whether the licenses are fully utilized or not. Therefore, the

dollar amounts approved for export do not represent actual

values of goods shipped in any given year.

SOURCE Department of Commerce, 1993, and Off Ice of Technology

Assessment 1994

low), which is likely to continue, whatever

COCOM-successor arrangements are negotiated.

In the fall of 1993, the DOC announced easing of

controls on computers, which would mean a further decline in licensing, since computers accounted for about $8 billion in individual licenses

in 1993 (see app. B on computer export controls).

At the end of March, 1994, as COCOM was abolished, the DOC announced further relaxation of

controls on telecommunications and computing

equipment. It estimated that the number of IVLS

required annually would drop to half of the 1993

level.

By the nature of the commodities, technology,

and software controlled, the burdens of export

controls do fall more heavily on certain hightechnology industries (see app. A). To the extent

that the controls of these industries’ exports lead

to loss of business, they lead also to the loss of

higher paying jobs and of tax revenues.24 In addition, if some U.S. high-technology industries

were to decline, the U.S. military might lose the

benefits of their research and products. In explaining a Clinton administration relaxation of export

controls on computers, then-Deputy Secretary of

Defense William J. Perry said:

We’re an important customer [of the computer

industry], but we’re no longer a dominant customer. Basically, our strategy today in computers is to get on the shoulder of the computer industry and take advantage of the developments

which are taking place .25

That is, the Defense Department’s ability to

embed advanced computer technology in its

weapon systems depends increasingly on advances made first in the commercial sector. Thus

Secretary Perry argued that the relaxation of control levels was justified in part because of the strategic benefit of reducing the burden on the industry and enhancing its exports.

24JtJhn Sullivan Wilson points out that

W(wkcrs tmlpl(~ycd in hi~h-/echno/o,gy indu.$fries recei~c higher levels of compensation than all (~(her goods-producing businesses, and

the premium paid these workers is growing . . it is clear that, to the extent the United States continues to pursue a trade policy that is

focused (m the opening of’ global markets and trade expansi(m, this will provide for greater employment oppwtuni[ies in relatively better-paying, high-techn(dogy jobs.

See ‘The U.S. 1982-93 Performance in Advanced Technology Trade,” Cha//cnge, January-February 1994, p. 16. Wilson also points out that

although available data indicate that the United States has been doing well in high-technology exports, trade and technology policy makers need

better data sets than those now collected.

25 WilIiam J. Perry, transcript of Breakfast with Rep(mters, Oct. 15, 1993 (venue not stated).
Enhancing

P■

■

■

the

olicy options for enhancing the effectiveness of nonproliferation export controls include measures to improve:

● processes for making lists of controlled items and

buyers,

administration of export license application evaluations

and the enforcement of regulations,

the enforcement of laws and regulations, and

the degree of international cooperation on multilateral export

controls.

IMPROVED EXPORT CONTROL LIST-MAKING

I Improve Information and Analysis

Formulating and reviewing the contents of export control lists involves identifying goods and technologies that could contribute

to weapon programs as well as identifying programs and countries of concern.

Maintaining and strengthening intelligence collection and

analysis capabilities are important to identify and track proliferation activities. The U.S. intelligence community has established

an office for this purpose. To be most effective, however, intelligence analysts make full use of information available from other

U.S. government agencies and from open sources. At the same

time, a diverse array of officials and experts outside the intelligence community also plays a role in producing the export control

lists of goods and target countries. The fullest possible cooperation among these players is essential for the government as a

whole to develop the most effective policies. No technical fixes

can substitute for such cooperation, but, if it exists, several options are available for bettering communication among policyExport

Controls 5

Since there are very few

technologies useful to

proliferant weapons

programs that the United

States produces uniquely,

international/ cooperation

among potential suppliers

or transshippers is

essential to effective

export controls.

I 31
32 I Export Controls and Nonproliferation Policy

makers and improving the base of information and

analysis from which they arrive at their decisions.

One option is to create a common database

through which all the involved analysts share

the widest possible range of information available. The Department of Energy (DOE) is creating what might be a prototype for such a system in

its “Proliferation Information Networked System” (PINS). PINS is intended first to assist DOE

in carrying out its nuclear nonproliferation responsibilities within the government (both in policymaking and export license application reviews), but in principle the idea could be

expanded beyond DOE and beyond a focus on nuclear nonproliferation alone. This classified computer network would permit full-text searches and

retrievals of information and analyses about current and past export license actions, nuclear-weapon-related technologies, foreign countries and end

users, national policies of both the United States

and other governments, and international agreements and policies. This information should help

analysts better identify countries of possible proliferation concern, the types of goods or technology that proliferant organizations may be trying to

buy, and the international networks of supply that

they may be using. Such analysis would be useful

both in developing lists of countries and items to

be controlled and in making decisions about

whether to approve particular export license applications.

The DOE PINS is being designed to let users

get access to multiple databases in multiple onscreen windows, comparing and synthesizing information quickly and easily. Newer computers,

with higher speed and more memory, allow

consideration of new techniques for sifting and

analyzing information. For example, the Defense Department’s Advanced Research Projects

Agency has been sponsoring research on new

ways of searching textual databases for all information relating to a particular subject, rather

than requiring the user to discover the exact combination of keyword searches that will yield theresults he or she wants. ]

In another example, Australian economist John

Galloway has developed a system called “NETMAP,” which lets users integrate and correlate

data from many sources into a single graphic environment. It creates visual, color-coded representations of connections and patterns among people,

organizations, or transactions.2 The developer has

licensed this technology to various companies for

many purposes, but it appears to be particularly

well suited to proliferation analysis. For example,

data from export license approvals and denials, financial transactions, customs discoveries and investigations, insurance underwritings, the trade

press, and intelligence sources might be combined

to reveal the kinds of clandestine procurement networks Iraq used to supply its nuclear weapon program. For such analysis to be most effective, the

analysts should have access to the full range of

information about all types of proliferation.

Several of the countries suspected of trying to

acquire one type of weapon of mass destruction

also appear to be trying to acquire the others:

they may try to use the same procurement systems.

The technology exists to build an interagency

network that would expand beyond the DOE

PINS and beyond the nuclear nonproliferation

mission. Still, those attempting to do so would

have to overcome at least three hurdles. First, the

rates of data flow would be high, so the agencies

using the system would have to be connected by

secure, high-capacity links, probably fiber optic

cables. For example, the bandwidth (i.e., the

amount of information that can be sent in a given

I For ~ ~re~~ ~ccount of the ARpA research, See Michael W. Miller, “U.S. Spies Help Scientists pierce Data Jungle,”’ wail .’$[reetJ~14rn~/, JUIY

27, 1993, pp. B I and B8.

‘Citing this system as an example should not be taken as an OTA endorsement. See Clive Davidson, “What Y(mr Database Hides Away,”

New’ Scientist, Jan. 9, 1993, pp. 28-31. OTA was also briefed by a U.S. firm, ALTA Analytics, Inc., adapting NETMAP to various governmental

and commercial tasks.
Chapter 5 Options for Enhancing Export Controls | 33

time) connecting the current experimental PINS

sites is not great enough to allow the transmission

of much image material from one site to another.

The interconnections would not be technically

challenging, but might be expensive.

A second hurdle is both bureaucratic and financial: all the involved agencies would have to buy

and be prepared to maintain similar computer

equipment and software. Citing different needs

and ways of operating, different agencies often

resist such coordination. Multiple agencies are

already developing their own, unique proliferation databases for internal use.

Third, although an interagency network could

handle classified information, there are good reasons to keep certain categories of data compartmented (available only to certain classes of users)

as well as classified. The Atomic Energy Act requires DOE to protect Restricted Data having to

do with nuclear weapons; within that category,

some subcategories of information are dispensed

only to those with a particular “need to know” and,

for some types of information, whose terminals

are located in specially secured areas. Therefore,

great care will have to be taken in finding the level

of detail about nuclear technology to put in the database that will be useful to all the participants but

at the same time does not put nuclear weapon design information at undue risk.

The other category of specially protected information relevant to a nonproliferation network

is intelligence. Ideally, the database would contain

all the necessary intelligence findings about potential proliferant programs without revealing the

sources and methods behind those findings. In

practice, this can be difficult: the very fact that the

government possesses some information can

sometimes indicate where that information must

have come from.

Computer networks can be designed to allow

various levels of access to information, depending

on the clearance level of the user or the terminal.

This should not bean insurmountable problem for

the PINS or some extended version of it. The larger problem is deciding what levels of information

users need to do their jobs properly.

MORE EFFECTIVE LICENSING

ADMINISTRATION

Building lists of controlled items, countries, and

end-users is just the first step in the administration

of an export control system. The next, equally important, step is the administration of the licensing

process. Several measures arguably have potential

for increasing the effectiveness of the licensing

process.

 Improved U.S. Government Computer

Systems for License Evaluation

The Department of Commerce (DOC) now has a

computer system, installed in 1985, that tracks export control license applications.s License applicants can submit applications directly by computer; alternatively, the Office of Export Licensing

(OEL) will digitally scan paper applications into

the system. From then on, the license application,

with the supporting information supplied by the

applicant, can be routed electronically through the

OEL and to other agencies to which the application might be referred for review.

There are things that the current system

cannot do that might both speed up and bring

better information and judgment to bear on licensing decisions:

allow reviewing analysts of any agency to

which licenses are referred to extract, in real

time (i.e., as the analyst sits at his desk considering an application) data about previous relevant decisions or other current applications

dealing with the same types of commodities,

sellers, buyers, or proposed end-users and enduses;

supply, on the same computer screen at the

same time, technical background information,

l~c Sys[erll Is Called th~> “Ex.Fwt Ctmtri)l Aut(muitcd Suppwt System,” (w ECASS
34 I Export Controls and Nonproliferation Policy

current intelligence, or other information about

parties to the proposed transaction; and

permit access to all potentially relevant information among all participants (in whatever

agency) in the license review process.

The computer technologies described above in

the section on improving the list-building process

could be even more usefully applied to bring these

features to the licensing process. Indeed, as the

DOE envisages for its PIN system, the same computer network could serve both activities at once.

The hurdles to installing such a system that are

also described above would still apply.

 Increase Public Accountability of

Licensing Decisions

Today, DOC issues an annual list of licenses

granted for commodities to restricted nations,

with summary data about the number of licenses

granted for each type of commodity and the dollar

value for each type going to each nation. Recent

legislation proposed in the Congress would require that within 6 months after issuance of a license to export any nuclear dual-use item, the

Secretary of Commerce would publish the commodity description, the country destination. the

end-use and end-user, the quantity, the date of approval, and the date and method of shipment.4

Speaking in support of this legislation, Senator

Glenn said:

The present system of nondisclosure has led,

especially in the case of goods sent to Iraq, to a

crisis in public confidence that America has its

own export control house in order. The best way

to restore that confidence and to ensure more effective oversight and accountability is to permit

greater public scrutiny of the

censing data.5

nonproprietary liSome analysts have advocated that exporting

companies should be identified as well:

Congress should now require the Commerce

Department to publish quarterly summaries of

all dual-use licensing actions . . . The list would

only cover licensing actions that have been completed. Pending sales would not be reported.b

Advocates of transparency in licensing decisions have been interested primarily in public accountability:

Pushing export licensing into the light of day

would encourage the exporters to be honest, encourage the government to be careful, and allow

the public to find out whether U.S. exports are

undermining national security.7

There are other possible benefits from making the information openly available. First, it

would enhance unclassified analyses by non-governmental investigators of export-import patterns

that might identify previously undetected weapon

programs or supply networks (see below, in the

section on improving multilateral export controls,

for the benefits of strengthening unclassified analytic efforts). Second, it might set a precedent for

helping to persuade other nations to release comparable information, thus easing the task of both

governments and nongovernmental groups in

identifying possible avenues of proliferation.

Third, one critic of the current system has argued

that revealing all licensing decisions (including

denials and returns without action) would increase

the fairness of the system by letting all sellers

know what types of exports had previously been

approved. This information, he says, would allow

any firm both to predict better whether its own license application is likely to be approved and to

give it a basis for appeal of what it believes to be an

unfair decision. If, as this author argues, licensing

g~e ‘“Nuclear EXpoII R~organi~alion” Act of 1993,” bill S. 1055 introduced May 27, 1993, Sec. 3 10; the amespondingHouse bill was H.R.

2359.

Sj{)hn G]enn, ConKres~lona/ Record (May 27, 1993), Daily e~.~ s677~.

~Ga~ Mi]h(~l]in“Licensin~ .Mass Des[ruc[km: U.S. Exp)rts [() Iraq, 1985- 1990, ” manuscript, Wisc(msin ~OJect on Nuclear A~s control,”

June 1991, p. 14.

‘Ibid.
Chapter 5 Options for Enhancing Export Controls | 35

decisions are to be subjected to judicial, as well as

administrative, appeals, such information becomes all the more necessary.8 Commerce Department officials, however, say that each license

application is judged on its own merits under the

particular circumstances; therefore, the experience of previous applicants would not tell the exporter much about how his own application would

fare, either in administrative or judicial review.

There are some object ions to this level of transparency in the licensing process. First, companies

submitting license applications worry about the

revelation of proprietary data that would compromise competitive advantages. Although some advocates of releasing licensing information argue

that companies have no reason to conceal legitimate sales, the question is somewhat more complex.9 For some goods or technologies, the fact

that certain companies have found (entirely legitimate) buyers for particular products could tip off

competitors to explore markets previously only

known to the company applying for the 1icense. In

such cases, the biggest losers could be the most

successful firms: information about their customer bases would be revealed to competitors who

had not yet penetrated the market as well.

In addition, license applicants sometimes supply a considerable amount of detailed data about

their products to support their applications; exposure of that data and of pricing information could

give advantages to their competitors for legitimate

sales. On the other hand, it should be possible to

exclude these more detailed proprietary data from

the public domain. Finally, since license approvals are good for 2 years, an approved license may

not correspond to a completed sales agreement;

therefore, means would have to be found for protecting exporters from competitors’ exploitation

of information about uncompleted sales. One option would be to require exporters not only to apply for licenses, but to report to the government

when and to what extent the shipments licensed

actually took place. This would have the additional benefit of providing more complete information

about international trade patterns in sensitive

technology.

Publishing licensing data would permit

more external oversight of governmental decisions. It would also expose those decisions to the

possibility of politicized second guessing. Outside observers will question both individual decisions and the overall pattern of decisions—that is

the point of public accountability. Those criticisms may often be justified; at other times, they

will not. In either case, they will not be made with

the full range of classified and proprietary information available to the decision makers. Depending on the prevailing political atmosphere,

the anticipation of external criticisms (including

those from Capitol Hill) could lead licensing officers either to be hesitant to approve exports (thus

restraining legitimate business) or reluctant to

deny them (thus increasing proliferation risks).

 Strengthen Interagency Review

Processes

Procedures for referring export license applications to other agencies outside the DOC are meant

to assure that those agencies can bring to bear:

■ a broader range of substantive and technical

knowledge and judgment than is available in

any single agency, and

‘Ht~ward N. Fent~m, “Reff~m]]ng the Prxwxlurcs of the Expwt Admlnistratt(m Act. A Call for openness :ind Adrnlnlstratii c Duc Process,’”

Iewi In[crnotl{mal [,a~% Journal, vol. 27, w Inter 1992. p. 61.

‘

) SW, c,g.. Kenneth R. Tlrnmemvm, “Tinw for a N(mProllfcrat](m Agenda.”’ L’je on ,SIIpp/~, w Inter 1993, p. 78, S]rnilari), Mllhf)llln argues:

If a company IS ashamed of ha~ Ing sold (me of its pr{xlucts to a clevcl(~plng count~, the company should not have made the sale in the

first place. Repu(ahlc cornpan]cs do not object [() tcll]ng the truth alx)rrt their business. If the sales arc lcg]t}mate, and satisfy the export

cntcrla, there is no reason to keep thcrn hlddcn.

op. cit., footnote 6, p. I 4.
36 I Export Controls and Nonproliferation Policy

● the other agencies jurisdictional perspectives

on U.S. national security and foreign policy interests.

It is also possible that additional analysis by

more than one agency could catch problems that

only a single-pass review might miss. Some critics of the current administrative arrangements

for reviewing applications have proposed

changes intended to increase assurances that

the referral process will block inappropriate license approvals.

For example, one proposal is that all proliferation-relevant applications be automatically referred to the Defense Department, which would

manage further referrals and make the final 1icens -

ing decision.

10 The basis for this proposal is the

author’s judgment that in the 1980s the Commerce Department issued numerous export licenses for Iraq without referring them to the proper external agencies. In this author’s view, the

reason for these failures is the “conflict between

the Commerce Department’s duty to promote exports and its duty to regulate them.”11 It should

also be recalled, however, that during the 1980s,

high-level U.S. policy was tilting toward Iraq in

its war against Iran, and it may have been Administration political judgments—rather than Commerce Department zeal for export promotion—

that led to questionable license approvals.

Commerce officials say that during this period,

the Department referred applications to the Defense Department according to mutually agreedupon procedures.

Another proposal has been to give the Arms

Control and Disarmament Agency (ACDA) a

stronger role in the export licensing process. Senate Foreign Relations Committee legislation proposing this step in 1993 was put on hold at the Administration’s request until the Administration

could prepare its proposed revision of the Export

IOMi]ho]]in, op. Cl(., W. 12- 13“

11 Ibid.

Administration Act (EAA). In exchange for the

delay, Administration officials offered the Committee assurances that in the meanwhile the

ACDA role in dual-use export control review and

decision making would be strengthened.lz

However, attempting to produce policy shifts

by legislating structural changes may not always produce the desired effects. For example,

although in the past the Defense Department favored the strictest of export controls, officials at

the highest levels of DOD strongly supported the

Clinton Administration’s raising of control

thresholds for computers in the fall of 1993.

Another proposal for increasing participation

of other agencies is to require the DOC to send information copies to one or more other agencies of

the licenses it intends to approve but does not intend to refer formally to those agencies. Such a

procedure might have two benefits. First, it would

give the other agencies additional information to

use in their own analysis of international trade patterns relevant to proliferation. Second, depending

on how long before actual license approval the information came in, it would give the other agencies the opportunity to make the case with DOC

that they should have the opportunity to review

certain applications. Even though DOC may be

making a good-faith judgment that its referral policies were consistent with interagency understandings, differences of interpretation might

arise in particular instances.

Short of removing export licensing management from the DOC, the interagency review

process for certain types of referral could be

further formalized, with greater authority given to interagency groups. Under current procedures, DOC refers Nuclear Referral List items (as

well as transactions involving known nuclear endusers) to DOE, and to other agencies, according to

rules agreed on between DOC and those agencies.

1 ‘U.S. Congress, Senate, C(mmlittee (m Foreign Relations, The Arms Conrro/ and Nonpro/~era/ion Act oj’/993, Rqx)rt 103-172, Nov. 5,

I 993.
Chapter 5 Options for Enhancing Export Controls | 37

If either DOC or DOE believes either that the application should be denied, or that it should undergo further review, then it is referred to the interagency Subgroup on Nuclear Export

Coordination (SNEC, representing the Departments of Defense, Commerce, State, and Energy,

as well as the Arms Control and Disarmament

Agency and the Nuclear Regulatory Commission). In calendar year 1993. 740 applications

were so referred. The SNEC either provides its

unanimous information and advice to DOC or

sends the application for higher level review. The

proposed Nuclear Export Reorganization Act of

1993 would have legislatively established the

SNEC within the National Security Council, required it to review applications to export any item

on the Nuclear Referral List, and give it deciding

(rather than just advisory) authority over licenses.

13 The group would also have been responsible for maintaining the Nuclear Referral List itself. The purpose of such a role for the SNEC

would be to assure that the full panoply of information and expertise available in the government would be brought to bear on every Iicensing

decision.

Formalizing the interagency review process in

this way would probably impose the costs of

creating a new bureaucratic unit, complete with

staff and administrative support. It would also require a new computer system able to manage records of discussions and decisions for both Iicensing processing and export control targeting

purposes. On the other hand. such a computer system would probably be useful whether a new bureaucratic unit were created or not. If the new unit

were created, the agency personnel already performing the licensing review and 1ist-construction

functions could be assigned to the SNEC full-time

rather than part-time, so the net additional cost

might not be high. Another benefit of having a for- e

realized, routine, and well-staffed interagency review process could be to shorten the time that licensing decisions now take. That might help

answer one of the major industry complaints

about the current process (see below, ch. 6, p. 64).

I Increase Export Control Awareness

Among Exporters

Through the Federal Register and through publications of its own, the DOC informs exporters of

export control regulations and of countries and

end-users of particular concern. One proposal is

that the SNEC publish a regular bulletin that

would expand on such efforts to include information on

. . . regulations, international agreements, and

other relevant developments [to inform] exporters and the general public about the risks of proliferation and efforts to reduce or eliminate such

risks. 14

Such a publication could also cover other types

of proliferation besides nuclear. Extensive publication of government information on suspect programs would be one way of enabling exporters to

cooperate with nonproliferation efforts. According to the U.S. Customs Service, industry is its

best source of information about illegal acquisition attempts. Thus, it is important not only that

companies comply with export regulations

themselves, but that they report approaches

from buyers who may be trying to evade the

regulations. (The Commerce Department and the

Customs Service already have publicity programs

aimed at informing exporters of possible indications of illegal exports. )

To encourage cooperation by U.S. companies,

the United States could permit firms to petition for

investigation of, and possibly sanctions on, foreign companies that they suspect are undercutting

internationally agreed export controls. 5 This
38 I Export Controls and Nonproliferation Policy

process might both help assure U.S. firms that

they would not have to face unfair competition

and help provide the government with more information on possible avenues of proliferation.

IMPROVED ENFORCEMENT

I Increase Enforcement Resources

The DOC Bureau of Export Administration,

cooperating with U.S. diplomatic posts abroad,

the U.S. Customs Service, and foreign governments, sometimes conducts pre-license checks

and post-shipment verifications on the end-users

named in export license applications. The resources now avail able for conducting these checks

are extremely limited. Nor, according to a 1993 report by the DOC Inspector General, have they always been administered systematically, efficiently, or according to established guidelines. In

particular, random checks lacked a strategic plan,

with stated purposes and priorities. In fiscal year

1992, commercial officers at foreign posts conducted 568 pre-license checks and 177 post-shipment verifications, of these, 65 to 75 percent were

random checks, while the remainder resulted from

derogatory information.16

Checks and verifications could, first, be systematized. More effective sharing of data and

analysis (as might occur with other options discussed in this report) could help the DOC and other agencies plan a more coherent checking strategy. Second, checks could be increased annually on

a stepped basis, with each increment of checking

activity weighed against the number of undesirable buyers that it revealed. If the checks were effective, one would expect to see an initial jump in

such discoveries, followed in a few years by a decline as the threat of discovery deterred more objectionable buyers. The trick would be to find the

point of declining marginal returns-the increment of expense in checking that did not produce a

commensurate increment of deterrence.

Both checks and verifications are best seen as

means of gathering evidence about the credibility

of buyers before a new or additional license is

granted (or before additional shipments are made

under an existing license). Checks may help weed

out obvious front-company buyers and firms or

agencies that have clearly misrepresented their

functions. However, unless an item has actually

been removed from its intended site, post-shipment checks may not easily detect whether items

are being used for their stated purposes. If someone is misusing a controlled item at the declared

site for its legitimate employment, that user is

probably capable of concealing the fact from the

U.S. Foreign Commercial Service officers who

usually do the checking. If the item has been diverted elsewhere, little information (except that

the buyer is untrustworthy) has been obtained; retrieving the transferred item is unlikely to be an

option.

In addition to pre-license and end-user checks,

Commerce Export Administration and Customs

enforcement officials conduct investigations,

gather evidence, and make arrests. Resources for

these more traditional law-enforcement activities

could be increased.

I Reinforce the “Know” Rule

Current regulations require companies to obtain

Individual Validated Licenses (IVLS) for exports

of any items, listed in the Commerce Control List

or not, that they know (or are informed) are destined to be “directly employed in” the design, development, acquisition, or use of missiles or

chemical or biological weapons in a country listed

in one of the supplements to the Export Administration Regulations (EAR). The Department also

offers guidance about what an exporter can reasonably be expected to do to avoid customers who

may be engaged in inappropriate end-uses. An

exporter who has even “reason to know” that

I ~~f[ices ~)f lnsP.c[or Genera] :~t the U.S. D~p~rtnlm[s t)f Commerce, Defense, Energy, and sla~c, “The Federal Government Export Liccns]ng Pnmsses for Muniti(ms and Dual-Use Cimml(tiitics: Special [ntcragcncy Review, ” September 1993, pp. A 13-A 17.

I 758 Federal ReK151er, fjIU)29-6f103 ] , h’C. 23, 1993.
Chapter 5 Options for Enhancing Export Controls | 39

items or data might be used in a nuclear program

must also apply for a license. 18

Exporting industries have argued strongly

against maintaining this rule; its pros and cons are

discussed further in chapter 6, on options for reducing industry burdens. Should it be retained,

however, the kind of bulletin described in the section above could help assure that exporters have

sufficient reason to know about risky exports to be

held accountable. The Commerce Department already encourages companies to request advisory

opinions from the government as to whether a

contemplated export would subject them to legal

sanctions.

 Expand Computer Network Resources

The same sort of computer network, discussed

above, that could enhance list-making and licensing could also assist enforcement personnel in

identifying suspicious transactions. Enforcement

officials at Commerce Bureau of Export Administration (BXA) have been studying various

sources of data beyond those available from intelligence and law enforcement agencies to see if

they might help reveal suspicious export patterns.

For example, U.S. Census data on all the types and

quantities of items going to a particular country

might reveal patterns of imports suggesting diversion to a proliferant weapon program. Thus far,

however, Commerce has not had the resources to

put this sort of analysis into the context of a larger,

more encompassing database of the type described above.

I Extend Sanctions

U.S. laws provide for penalties against U.S. persons (individuals or firms) who violate U.S. export regulations. In recent years, Congress has attempted to bring sanctions to bear on others who

aid proliferation as well. In 1991, Congress extended sanctions to foreign persons whose exports

materially contribute to either chemical or biological weapon programs. The sanctions are bans on

U.S. government procurement from those persons

and on any United States imports from them. A

1990 law also imposes various sanctions on foreign persons who violate the Missile Technology

Control Regime (MTCR), including a ban on U.S.

imports from those whose exports have substantially contributed to a non-MTCR adherent missile program. Similar sanctions could be instituted

for those engaging in illicit nuclear exports.

The Administration draft EAA attempts to consolidate the sanctions provisions of the current

laws on chemical and biological weapons proliferation and use and on missile technology control.

The sanctions section of this draft bill is summarized in table 5-1.

The subject of sanctions in export controls is a

confusing one because of the circular relationship

between the two: sometimes sanctions are tools

to enforce export controls, and sometimes export controls themselves are the sanctions.

Moreover, export controls adopted for one purpose are applied as sanctions for another purpose.

It is important, therefore, to make judgments

about controls and sanctions in the context of their

purposes. In particular, from the standpoint of

nonproliferation policy, the utility of export controls intended primarily to deny access to items

that directly contribute to proliferation should not

be judged on the basis of their effectiveness or cost

in efforts to punish some nations for their support

of international terrorism.

When economic sanctions are applied for any

purpose, they usually pose dilemmas for policy

makers. First, they impose costs on the United

States as well as on the target of the sanctions: export bans cost sales to U.S. firms; import bans

keep out things that U.S. consumers may want or
40 I Export Controls and Nonproliferation Policy

Chemical, Biological Weapon (CBW)

Action or Missile Proliferation — - — —

Presidential Any foreign person has knowingly, or with reason to know,

determination contributed materially to the efforts of any government,

group, entity, or project to use, design, develop, produce,

stockpile, or otherwise acquire chemical or biological

weapons (or missiles)

■

Mandatory

sanctions

Discretionary

sanctions

Mandatory

sanctions for

CBW use

Discretionary

sanctions for

CBW use

■

●

through the export or transfer of any chemicals, biological

agents or equipment which may contribute to a chemical or

biological weapons program such as those listed by the

Australia Group (or items listed in the Missile Technology

Control Regime annex) whether or not of U.S.-origin, or

by participating in any financial transaction related to the

described activity or

by facilitating the described activity

Denial of exports of items controlled by the Australia group

(or the MTCR annex)

Imports of such items from such entities prohibited

In event of CBW proliferation, President may choose any of

the 11 actions Iisted as mandatory or discretionary for use

of CBW (see rows below), such sanctions shall be proportionate to the harm the sanctioned behavior has caused to

the national security or nonproliferation interests of the

United States

1)

2)

All

Chemical, Biological

Weapon Use

The government of a foreign

country has used chemical

or biological weapons in

violation of international law

or used lethal chemical or biological weapons against its

own nationals,

Within 3 months of the above

determination, violation government has not

■ ceased use,

■ provided reliable assurances of non-use in the

future, and

■ agreed to on-site inspections to verify non-use

of the sanctions listed below

as Mandatory for CBW use

If President makes second determination above, he must

impose at least 3 of the following 6 listed below as Discretionary for CBW use

1) No U S Government procurement for a minimum of 2 years of any kind from or produced by

2)

3)

4)

5)

1)

2)

3)

4)

5)

6)

CB-using country

Termination of U S foreign assistance (except urgent humanitarian aid and agricultural

products)

Termination of U.S. arms sales

Denial of U.S. Government credit or other financial aid

Denial of national-security sensitive EAA-controlled exports

Oppose loans or other aid by international financial institutions

Prohibit any U S bank from making loans or credit except for agricultural products

Prohibit U.S. exports to the country of all items except agricultural products

Restrict Importation of articles that are the growth, product, or manufacture of the country

Downgrade or suspend diplomatic relations with the country

Suspend country’s air carriers from engaging in foreign air transportation to or from the U S.

— —
Chapter 5 Options for Enhancing Export Controls | 41

Exceptions

Deferrals 1 President may delay determinations (above) or sanctions to protect ongoing criminal investigations or sensitive Intelligence sources being used to gather further Information on proliferation

2 President may delay sanctions for up to 180 days if the U S IS engaged in diplomatic efforts

to curtail the sanctioned conduct or obtain sanctions against the person from the government of jurisdiction over that person If these efforts succeed, U.S. sanctions not required

Sanctions not required in cases of

export or transfer authorized by, or exports to, a country adhering to the Australia Group or a

signatory to the Chemical Weapons Convention

defense procurement under existing contracts, if the defense articles or services are not

readily available elsewhere, or they are essential to national security under defense co-production agreements

other Imports under existing contracts, spare parts component parts, information, or technology essential to U S products or production, routine servicing of products not otherwise

readily available, medical or other humanitarian items

any transactions subject to the reporting requirements of the National Security Act of 1947

performance of prior contracts when barring it not necessary to achieve U S national security

or nonproliferation objects and would be contrary to the national interest

Waivers of President may waive sanctions if he or she determines that a waiver iS Important to the national

application of interests of the U S and notifies Congress not less than 20 days before waiver takes effect

sanctions

SOURCE Department of Commerce and Off Ice of Technology Assessment, 1994

that U.S. producers may need.

20 Second, they risk

achieving so much distance between the U.S. and

the target state that the latter decides to simply

defy the sanctions and resist all further U.S. influence. Third, if the United States is too far ahead of

the rest of the international community in imposing sanctions, its efforts are likely to be undercut

by other nations.

The Administration draft EAA attempts to take

account of these dilemmas by granting the president nearly total discretion in imposing sanctions;

essentially, the draft authorizes a wide range of

sanctions, extending up to complete embargo,

then adds sufficient deferrals, exceptions, and

waivers to allow him to do nothing if he so decides. Broadly speaking, one of two other legislative policies could be adopted:

■ first, 1imit the president ability to defer or

waive one or more sanctions (i.e. mandate them

or narrow the exceptions); or

■ second, limit the president’s authority to impose sanctions, either in kinds or in duration.

Each of these three legislative approaches—

flexibility, mandate, or restriction-has its drawbacks. Granting great flexibility risks that a president will do nothing when the Congress might

wish that he would do something, or vice-versa.

Unconditionally mandating sanctions risks forcing the president to take actions in unforeseen circumstances that may be costly but either ineffective or actually detrimental to nonproliferation

goals. Restricting sanctions risks making them

~ON(Jt (rely do sanctltm~ inlp)se C(MIS (m the side Impt)sing the sanctions, but the> fall unevenly on its citizens. Firms that depend on the

c~p{m t~f ct~ntrol led Itcms haf c nl(~rc to I(w than tht)sc that do not, firms that depend on ]mpwts fr[ml the targeted party ha~ c rm~re to lose than

those who impwt from clsew here. Et cn In a t(~tal enlbargt~ of the target party, particularly if it is an entire nati[m, s(m~e U.S. exporters and impor_-

ers w ( mld hwe more than others, depend]ng on the prior patterns of trade he[w een the two c(wntries.
42 I Export Controls and Nonproliferation Policy

unavailable in circumstances where they might be

effective.

A compromise option would be to permit the

flexibility requested in the Administration draft

EAA, but to accompany it with more explicit provisions for accountability to Congress about the

costs and effectiveness of sanctions imposed. The

Administration bill already would require assessments of economic costs and qualitative estimates

of effectiveness for export controls; presumably,

these required reports to Congress would have to

be made when export controls were used as sanctions as well as when they were used for their primary purposes of denial. The same kinds of assessments could also be required for the other

types of sanctions listed in table 5-1. Such reports

(if their quality were maintained by the demands

of watchful congressional oversight committees)

would permit the legislative branch to make independent judgments on whether executive branch

decisions on the costs and benefits of sanctions

were serving the national interest.

STRENGTHENING MULTILATERAL

CONTROLS

Since there are very few technologies useful to

proliferant weapons programs that the United

States produces uniquely, international cooperation among potential suppliers or transshippers is essential to effective export controls. The United States has played a key role in

the establishment and operation of the existing

multilateral supplier groups: the Nuclear Suppliers Groups (NSG), the Australia Group, the

MTCR, the Coordinating Committee on Multilateral Export (COCOM), and the COCOM successor. Recent successes include leading the NSG in

1992 to agree to adopt multilateral controls on certain dual-use technologies (see box 5-1 for description of NSG guidelines) and getting Russia in

1993 to promise full compliance with the terms of

the MTCR.21 Additional steps to strengthen multilateral controls are possible.

 Keep Conventional and

Mass-Destruction Weapons on

Separate Tracks

The oldest, most highly coordinated, but also the

most contentious, of the supplier-group regimes

for dual-use items was COCOM. COCOM dualuse controls (the “Industrial List”) were intended

primarily to keep advanced conventional military

technologies out of the hands of potential adversaries of the United States and its allies.22 Differing interpretations of COCOM requirements led

to some disputes between the United States and its

European allies. The administration of national

security (i.e., COCOM) controls also led to the

greatest complaints of unfairness from U.S. industry.23

With the end of the Cold War, the membership,

targets, and listed technologies for any successor

arrangement to COCOM (former] y a Western arrangement for denying technology to Communist

nations, terminated at the end of March 1994) are

undergoing significant changes that must be multilaterally negotiated. With technologies applicable to weapons of mass destruction already addressed in other multilateral export control

regimes, the COCOM successor regime, if

created, will most likely attempt to regulate the

transfer of technologies for developing or making

conventional weapons. Consensus will be difficult to reach, both within the United States and

2] When it adopted new guidelines on dual-use technology transfers, the NSG also adopted a rule, long advt~ated by the United States, that

the transfer of certain nuclear-related “trigger list” technologies w(mld be conditioned on acceptance by the recipient of IAEA safeguards on

any other facilities in the country of the same type to which the technology was being transfemed.

22 COCOM also had a list of nuclear-related technologies, but apparently these had little consequence for U.S. exprt administration because the other nuclear-supplier agreements are rmwe comprehensive. In addition, there was a COCOM list of mil itary equipment, controlled in

the United States under the Am~s Expwt C(mtrol Act.

‘sSee, for example, Th(~mas T. Connelly, “Statement on Behalf of AMT—The Association for Manufacturing Technology-bef(we the

Subammlittee on Ec(momic Policy, Trade, and Envir(mment of the House Committee on Foreign Affairs,” Nov. 18, 1993, pp. 6-7.
Chapter 5 Options for Enhancing Export Controls | 43

Supplier should establish export licensing procedures for the transfer of equipment, material, and related

technology identified in the Annex These procedures should include enforcement measures for violations. In

considering whether to authorize such transfers, suppliers should exercise prudence in order to carry out the

Basic Principle and should take relevant factors into account, including

a

b

c

d

e

f

9.

whether the recipient state iS a party to the Nuclear Non- Proliferation Treaty (NPT) or to the Treaty for the

Prohibltion of Nuclear Weapons in Latin America (Treaty of Tlatelolco), or to a similar International legallybinding nuclear nonproliferation agreement, and has an IAEA safeguards agreement in force applicable to

all its peaceful nuclear activties,

whether any recipient state that iS not party to [the treaties named above] has any [nuclear fuel-cycle facili -

ties] that are operational or being designed or constructed that are not, or will not be subject to IAEA safeguards,

whether the [item] to be transferred IS appropriate for the stated end-use and whether that stated end-use iS

appropriate for the end-user,

whether the [item] to be transferred iS to be used in research on, or development, design, manufacture,

construction operation or maintenance of any reprocessing or enrichment facility;

whether government actions, statements, and policies of the recipient state are supportive of nuclear nonproliferation and whether the recipient state iS in compliance with its international obligations in the field of

nonproliferation

whether the recipients have been engaged in clandestine or Illegal procurement activities and

whether a transfer has not been authorized to the end-user or whether the end-user has diverted for purposes inconsistent with the Guidelines any transfer previously authorized

SOURCE International Atomic Energy Agency INFCIRC/254Rev .1 Part 2 July 1992

—

.~mong the international participants, about what ling production of advanced conventional weaptechnologies should be controlled tind for what

reasons .24 Therefore, the nonproliferation regimes dealing with weapons of mass destruction (and missiles), for which considerable consensus has already been painstakingly built,

should not be mixed into controversies over

COCOM revisions of technologies controlled

for other purposes. Administration officials

have spoken of moving the emphasis in a successor arrangement from maintaining the West military technology edge over Communist countries

to limiting the proliferation of technologies enabons to some states not now possessing them. See

table 5-2 for a comparison of the COCOM and

weapons of mass destruction regimes.

A National Academy of Sciences study on export controls proposed either an additional nonproliferation category and regime for conventional weapons technology, or incorporation of

conventional technologies into one of the existing

regimes. 25 The above ar~urnen( favors a separate

negotiating forum for conventional weapon

technologies. Insofar as those overlap with nu24FtJr example. st)nw nat itms resist cooperation with nonprt)liferati(m expwt c(mtrol regimes (m the gr(mnds that the Lln]td StatcJ IS scchlng such C( )n[ro]s Prinlari]y, [t J pro[~ct ][SC[ f frt)nl cconon~ic” ctmlpct]tl(m, alth(mgh th]s IS nt~t true, the iirgument ft~r It is c:isier I(J make In (he case

of cx pm controls” Intended t( J hl(xk the transfer of tcchn(}log]es that might k> usable for a br{)ad range of conk entl ( )nal m i I itary appl lcat Ifms, not

just wca~ms t)f mass dcstructl(m.

2$ Panel (m the Future Dwgn and Inlplmwntat]tm t~f U.S. Namml Sccunt) Ekp{wt C{mtrols, Find/n<q (’onvnon Grcmnd: .!J’. S. Llporf Cwtro/.f /n a Ch(Jrrqcd (;/hJ/ L’rr\>IrmnICrrI (W’ashlngttm. DC Nat](mal Acackmy Press. 199 I ), p. 131.
44 I Export Controls and Nonproliferation Policy

Regime COCOM NSG, AG, MTCR COCOM successor?

Purpose Maintain Western military-technological advantage over target states

Targets States under the control of

Communist regimes, buyers

who might divert items to

such states

Scope of Wide range of dual-use comcontrols modities, technology, and

software, including those relevant to modern industrial development as well as those

specifically applicable to developing or producing advanced conventional weapons in addition to weapons of

mass destruction

Rationale for Deterrence of Communist aginternational gression by maintain technoconsensus Iogical superiority of allied

over Communist military

forces

Principle of Consensus all members must

operation agree to sale of controlled

items

Prevent or slow the spread to

target programs of capabilities

to develop or produce nuclear,

chemical, or biological weapons, or missiles

Activities and facilities to develop, produce, or otherwise acquire weapons of mass destruction or missiles, buyers

who might divert items to such

activities

Narrower range of dual-use

items applicable to developing

or producing banned weapons

Prevention of threats to international peace and security from

possession of weapons of

mass destruction by those not

already having them

National discretion guidance

and control lists mutually negotiated, but Iicensing decisions

remain at national level

Prevent or slow the spread to

target programs of capabilities to develop or produce

advanced conventional

weapons

Rogue nations falling short of

some standards of international behavior

Similar to COCOM items

Containment of threats to regional or global security

posed by “rogue” or “backlash” nations

Probably national discretion

SOURCE Office of Technology Assessment, 1994

clear or missile technologies, they should be cov- should not authorize transfers of the listed items:

ered under the latter regimes anyway. ■

 Enhancing Nuclear Suppliers’ Group

Coordination ■

In March 1992, the NSG agreed to adopt common

export controls on a list of nuclear-related dualuse materials, equipment, and technologies. They

agreed to the “Basic Principle” that suppliers

for use in a non-nuclear-weapon state in a

nuclear explosive activity or an unsafeguarded nuclear fuel cycle activity, or

in general, when there is an unacceptable

risk of diversion to such an activity, or

when the transfers are contrary to the objective of averting the proliferation of nuclear weapons .26

‘blntematifmal Atomic Energy Agency, INFCIRC/254/Rev. I iPart 1, July 1992, “LCtmlnlunicati(ms Received Fnml Certain Member States

Regarding Guidelines for the Export of Nuclear Material, Equipment and Technok)gy: Nuclear-Relaled Dual-Use Transfers,” Annex Attachment, p. 2.
Chapter 5 Options for Enhancing Export Controls | 45

The NSG agreed that decisions to approve exports of the items on this list would take into account several relevant factors in deciding whether

transfers were acceptable (see box 5-1 ). One of

those factors was to be whether a transfer has been

refused by someone else (i.e., a ““no-undercut”

guideline).

One observer has expressed concern about the

actual results of this agreement:

The NSG members have agreed to exchange

information on non-NSG states’ nuclear programs and dual-technology purchasing activi-

=

tics, and to meet for consultations at least once a

year. SO long as these arrangements remain

loosely specified and relatively uncoordinated,

they may not substantially improve the overall

quality of the intelligence available to NSG

mcmbcrs. 27

This author proposes that the United States

. . . should systematically communicate information and share intelligence assessments

with other NSG members in order to ensure that

multilateral restrictions on sensitive dualtechnologies arc effectively implemented and

lists of restricted technologies are properly kept

up to date.28

Modern telecommunications and computing technology make it possible to convey much

of this information almost instantaneously.

The Department of Energy Office of Arms Control is sponsoring a project on International Export

Information Sharing, centering on computerization of information sharing for the NSG agreement on controlling exports of dual-use technologies. The types of information to be included in

this database are:

■

■

■

export 1icense denials;

reference data useful to Nuclear Suppliers

Group members:

documents and information related to NSG

guide l ines on specifically nuclear-related

equipment, materials. and technologies: and

■ documents and information related to NSG

guidelines on nuclear-related dual-use equipment, materials, and technologies.

The database would reside on an international

computer network, with each member state having an inexpensive terminal linking it to the system. Besides giving the members access to a common database, the system would also allow them

to exchange electronic mail on NSG export control matters. Thus far, 20 NSG members have

agreed to install test terminals for this system, and

8 have been emplaced.

Such a network would offer a variety of opportunities for increased coordination among

the Nuclear Suppliers. In agreeing to multilateral controls on dual-use technologies, the NSG

members also agreed to inform one another when

they deny export license applications for the listed

items. Timely dissemination of this information

would allow each supplier to consider its own export decisions in the light of those made by any of

the others. Once refused an export license in one

country, a potential buyer would not have a chance

to find another supplier in another country even if

that country did not have independent reason for

suspicion about him. License denial information, as well as some of the other kinds of information described below, could be especially

useful to governments without the extensive export control infrastructure and intelligence resources of some of the larger members of the

NSG.

The reference data, documents, and other information in the database would include:

■ official documents. key officials and contact

persons, and various types of supporting information including International Atomic Energy Agency (IAEA) information circulars and

data on related international agreements;
46 I Export Controls and Nonproliferation Policy

copies of other nuclear-proliferation-relevant

agreements (e.g., the Nuclear Non-Proliferation Treaty [NPT]) and membership lists;

guides to the nuclear fuel cycle, to help ascertain the significance of specific equipment or

technologies; and

the latest information on the control of “Trigger

List” items—those directly nuclear-related

items whose export requires that the buyer submit his facilities that either use, or could use,

the items to IAEA safeguards.

Not only would the database provide immediate posting of all denials of 1icenses for transfers of

dual-use materials, equipment, and technology,

but it would also constitute a cumulative record of

the items, suppliers, and proposed buyers in the

denied transactions. Such an organized record

could help the member governments better identify and act on particular proliferation risks.

In addition to license denial information, the

database would include other information on potentially risky end-users, such as those with unsafeguarded nuclear activities, or those on various

members’ lists of suspected proliferants. It could

also serve as a funnel for some of the contributions of national intelligence services to the

multilateral group. On some occasions, it may

be possible to enter information into such a relatively open forum by developing unclassified

sources to cite for facts first detected by classified

means. (See section below on the utility of supporting open-source proliferation analyses. ) A

possible drawback to permitting such contributions to a database would be the risk that inaccurate information (intentionally or unintentionally

placed) would accumulate and be difficult to remove.

The NSG sharing scheme in principle could

be expanded by including export license approvals as well as denials. With this wider range

of data about exports with nuclear-weapon program potential, all members would have a better

chance of discerning trade patterns that might help

identify suspicious end-users or possible diversion paths. For the reasons cited above with respect to the option of the U.S. Commerce Department publicly reporting license approvals, other

members of the NSG may resist revelation of

theirs. 29 Should the United States decide to seek

such reporting, it may need to test that resistance

through the leadership both of exhortation and of

its own example. Even the expenditure of considerable diplomatic capital with other regime members may not be enough to bring about this degree

of cooperation.

On a separate track, the IAEA has had discussions about maintaining a register of all nuclearrelated transfers. The most recent agreement was

for the purely voluntary reporting only of fissile

material transfers and specially designed nuclear

equipment—not dual-use technologies. IAEA officials reported to OTA that compliance even with

that limited agreement has been uneven.

 Expanding the NSG Database Idea

The reference information in the proposed Nuclear Suppliers Group database would also include the export guidelines of the MTCR and the

control list of the Australia Group. Other than furnishing up-to-date details about those regimes, the

database as now proposed would play no further

role in coordinating the suppliers. Nevertheless,

the basic mechanisms of the proposed NSG database could be extended to the Australia

Group and the MTCR. This step would be most

useful in combination with agreements in those

regimes to report export denials, as the NSG members do. Such agreements, however, will not be

easy to obtain. Nevertheless, if the political difficulties could be overcome, a single proliferation

export-control database seems technically feasible, since there is a high degree of overlapping

~9As mmxt ah~ve, stm~e fim]s might be fearful that c(mfidtmtial (but still Iegilirnate) market mfomlation might be revealed to competitors” if

all sales were reported. Even if the supplier-group data were not in the pub] ic d(mlain, there would be the possibility (hat participating governments w(mld leak infomlati(m to their {nvn cxwntry’s fim~s.
Chapter 5 Options for Enhancing Export Controls | 47

Australia Group Missile Technology

(CW and BW) Control Regime

/“ Argentina \

\

/

Iceland

New Zealand

\

(Have

declared\

intention to

adhere to

guidelines:

Brazil

Belgium Luxembourg Chinaa

Canada Netherlands Israel

Denmark Norway South Africa)

Finland Portugal

Germany Sweden

Switzerland Russia

Hungary United Kingdom (MTCR

United States probable)

Romania

\

Bulgaria

Czech Republic

Nuclear Suppliers Poland

Group

a China promised 10 adhere to guidelines in 1991, but has not said it would adhere to revised guidlines of 1993

There iS a considerable overlap among the memberships of the three major nonproliferation export

control groups.

SOURCE Office of Technology Assessment, 1994

membership among these groups (see figure

5-1 ).30 Even if perfect overlap were not achieved

among the three suppliers groups, levels of access

to the system could be differentiated by group

membership. Alternatively, separate databases

could be set up for each group.

Aside from the supplier groups, there are two

other international groupings whose export control systems would benefit from shared data networks: the European Union (EU) and the newly

independent states of the former Soviet Union. In

1992 the European Community (EC) Commission reported to the EC Council on a review of the

export control systems of the member states. It

found important discrepancies among the states.

At the end of August 1992, the Commission

drafted an export-control guideline for adoption

by the Council. This draft included a proposal for:

. . . a system of information transmission and

exchange, to include all orders and transactions

of dual-use items, before actual transfers take

place. An electronic data network is envisioned

to build on the insights and information of national agencies and to inform all licensing agenWscc ~onw~ .s. s~’ctor and Vlrg]nla Form “Preventing Weapons Proliferation: Should the Regimes be Combined’?”’ (Muscatinc, 1A: The

Stanley Foundatwn, 1992).
48 I Export Controls and Nonproliferation Policy

to build on the insights and information of national agencies and to inform all licensing agencies immediately about the refusal of license applications. Thus, a binding exclusion of refused

licenses, in effect in all EC member states,

would be in force.31

It now appears that the EU will not adopt such

measures in the near future. Should it ever undertake to do so, U.S. experience in developing its

own networks could position it to cooperate in the

establishment of a European Union network. That

network might, in turn, become a basis for assistance to other states or groups of states in establishing their own systems. For example, in the

summer of 1993, Russia, Ukraine, and Belarus

discussed creation of an economic union; one proposal discussed was a common customs and export control system for the group. (See below for

further discussion of the export control situation

in the former Soviet republics. )

 Increase Intelligence Sharing

Whether by means of a networked database or

through other means of communication, sharing

intelligence data about unscrupulous suppliers, buying and financing operations, questionable agents, and suspicious end-users is an

important means by which supplier groups

can coordinate their export controls. Shared intelligence could, for example, help members of

the NSG make better informed licensing judgments by giving them more information about

how prospective buyers measure up against the

criteria that they have agreed to take into account

in licensing decisions (see above, box 5-1).

The greatest obstacle to sharing intelligence

data is the risk that revealing what an intelligence

agency knows might also reveal how it found out:

that sources and methods will be compromised.

Recognizing this problem, the CIA’s Non-Proliferation Center is placing increased emphasis on

“actionable” intelligence—information that can

be safely revealed when necessary to move

against proliferation activities. Enforcement officials at Commerce’s BXA have begun a proliferation database based on open sources, but purely

for internal use. In principle, such data could be

used to help explain to exporters why licenses are

being denied, to inform companies about what potential customers to avoid, or to alert other countries to possible proliferation risks.

In some situations, national intelligence agencies having trusted relationships with one another

may be able to share secret information. Amongst

the large and diverse sets of nations making up the

nonproliferation supplier groups, continuous, direct sharing of classified information seems unlikely.32 What seems more feasible is the production and dissemination of analyses based on open

sources. It may also be possible to develop opensource evidence for facts that might originally

have been indicated or discovered by secret

means.

All information sharing need not take the form

of current intelligence. When the supplier groups

(NSG, Australia, MTCR) meet, their governments could take the opportunity to send experienced export control officials, not just temporarily

assigned diplomats. These officials could be encouraged to examine comparable problems, exchange ideas about methods, and discuss actual

case examples that might hold lessons for their

counterparts.

To increase opportunities for multilateral

information sharing, one option to consider is

to provide government support for non-governmental, open-source database and analytic

projects. Examples of such projects are the Monitoring Proliferation Threats Project at the Monterey Institute of International Studies and the dataJ IHara]d Mu]]er, “me Exp)fl Con[r(}ls ~~ba[e ]n the ‘New’ European C(mlmunity,” Arms Conlro/ 7bday, March 1993, p. 12.

32~e Unl[ed States ~cP)~ed]y did find ways ofshar-lng lntell l~~nce inft~mla(i(m ahmt Iraq with the United Nations Special Comnlission” on

Iraq, but this could be made a more routine practice. For a discussion of possible nati(mal intelligence contributions [o United Nati(ms activities,

see Garret J(mes, “lntell igence Suppwt to United Nati(ms Activities, ” U.S. Am]y War College Study Project, Apr. 15, 1993.
— . . —

Chapter 5 Options for Enhancing Export Controls | 49

base of the Wisconsin Project on Nuclear Arms

Control, in Washington. One means of support for

such efforts is to contribute grants or award research contracts to the private institutions carrying on such projects. Another would be to share

information with them informally: perhaps giving

opinions as to which open sources are more or less

reliable, which analyses are more or less consonant with government analyses. One analyst suggests:

More “’cross-cultural” communication between the governmental and non-governmental

non-pro] iteration communities would be beneficial. With no access to classified information

but a suspicious attitude toward bureaucratic assessments, non-governmental analysts have the

potential to reach fundamentally incorrect conclusions. Perhaps the non-governmental community should become more tentative in its conclusions as it demonstrates greater skepticism

about the reliability of sources. On the other

hand, the governmental community may also be

too quick to dismiss public sources. Assigning

an individual in the higher echelons of govcrnment to sanitize classified information f o r

public release without revealing sources and

methods would facilitate cross-cultural communication between these two communities.33

Whether the information shared multilaterally

comes directly from the U.S. government, or

whether it comes from private U.S. institutions,

there is some risk that it will be perceived as a U.S.

too] for manipulating international opinion and

decisions to serve unilateral U.S. interests. This

risk imposes a need for considerable tact and diplomacy in the ways in which the United States attempts to persuade other nations to act on the information provided. Another way to reduce the

risk might be to help create and sponsor international nongovernmental organizations to monitor

and analyze proliferation problems. The goal

would be to minimize the perceived control or influence of any one national government, with the

hope that many governments would both contribute help to and utilize the products of such organizations.

The immediate goal of increased intelligence

and other information sharing among governments would be to enhance their export controls.

At the same time, greater public information

about proliferation activities could help mobilize

international support for the whole range of nonproliferation policies surveyed in the first report

of this OTA assessment: not only coercive actions

against violators of nonproliferation norms, but

internal and external pressures on governments to

renounce weapons of mass destruction and adhere

to the nonproliferation regimes.

I Support Development of FSU

Administration of Export Controls

The effectiveness of global export controls will be

great] y weakened unless Russia and the other former Soviet states join the full set of western nonproliferation control regimes: NSG, Australia

Group, and MTCR. Some progress has been made

in this direction with Russia already in the NSG,

vowing to become a de facto member of the

MTCR, and promising to adhere to Australia

Group guidelines. The other newly independent

states should also be brought into the nonproliferation regimes. These nations also need to develop

effective export control systems. The United

States has offered several million in Nunn-Lugar

funds for this purpose to each of the four republics

retaining Soviet nuclear weapons, but has reached

agreement on spending the money only with Belarus. Other republics could probably also make use

of financial assistance. In addition to funding,

U.S. agencies have also been offering technical

assistance in export controls to the former Soviet

states.

~~Mark G, McDonouoh ” “Nu~]ear Non.pro]” iferatlon ~oj~~t, Ct~nfercncc (m Strcngthcnlng the N(m-prolifcrati(m Regime: S~l~Cl~d AnalJ- a ,

ses. Fred] n.gs, and Reconlnlendatlons,”” manuscnpt, Carnegie End{~w mcnt for lntcmat](mal Peace. Mar, 18-19, 1992, p. 12. For a (iIscussitm of

the ISSUCS raised by the prt)spect of sharing mtcll igencc inft~m~ati(m w ]th an intcmali(~nal (~rganizat](m, we Garret J(mcs, op. cit., footnote 32.
50 I Export Controls and Nonproliferation Policy

A report containing views of both U.S. and

Russian experts observed that Russia has yet to

develop an effective export control system. Overall, the need is for:

. . . a competent civil authority with the will and

capabilities to enforce the laws, decrees, operation regulation, licensing procedures, and enforcement practices recently adopted by the

Government of the Russian Federation.34

Specifically, the problems include:

. . . 1 ) creating an adequate legislative and

executive basis for the structure as a whole and

each of its institutional bodies; 2) overcoming

the lack of transparency and openness in the administrative and other non-classified activities

of enterprises and scientific institutes; 3) installing an effective licensing system in the Russian

Federation regarding its rights in both the internal and international arenas, including protection for intellectual property rights; 4) overcoming the present ability of Russian enterprises and

institutions to conclude contracts with foreign

buyers, including contracts for dual use technologies and armaments, which circumvent national authorities in respect to export authorization,

registration, and licensing; 5) instituting customs controls and bringing them up to a sufficient level of effectiveness, particularly at borders with the neighboring states of the former

republics of the USSR.35

Moreover, not only in Russia, but elsewhere as

well:

. . . the establishment of sovereignty in the new

states of the former USSR is unfortunately being

accompanied by the weakening of legislative,

executive, and judicial powers, a rise in crime,

and the formation of organized crime syndicates

which include civil servants. The problem of

non-proliferation is also exacerbated by the unification of organized crime structures on an international level .36

Members of the NAS-RAS group argued that

the United States and Russia should work to harmonize and refine their export control lists. They

proposed that Russian and American scientists

and engineers work together to identify chokepoints for the unwanted export or internal transfer

37 They suggested that the two of technologies.

countries could establish a bilateral laboratory

group that would work to identify and agree upon

dangerous dual-use technologies. 38 The two

countries might also:

. . . establish a joint data bank group which

would establish joint lists of restricted technologies and enterprises or “’projects of concern” to

which certain technologies should not be internally transferred or exported.39

At the Moscow summit in January 1994, Presidents Clinton and Yeltsin signed a joint “Memorandum of Intent” on “Cooperation in the Area of

Export Control,” saying their governments intended to cooperate in “any or all” of six areas intended to improve nonproliferation export con3$u.s. Na[lona] Academy of Sciences and Russian Academy of sciences, “ Dual Use Technologies and Export Administration in the Post

Cold War Era” (Washington, DC: National Academy of Sciences, Apr. 1, 1993), p. 9.

3Slbid., p. 14.

361 bid., p. 10.

371 bid., p. 17.

381 bid., p. 17.

391 bid., p. 20.
Chapter 5 Options for Enhancing Export Controls | 51

trols and that they ‘*may” establish expert working

groups to carry out their intent.40 At this writing, it

is too soon to tell whether these actions will be taken or whether they will result in concrete improvements in the Russian control system.

l Seek Greater Cooperation From

Developing Countries

The newly independent states of the former Soviet

Union are not the only emerging source of commodities that could contribute to the spread of

weapons of mass destruction. Newly industrializing countries that are not members of the established export control groups are also becoming

possible suppliers to proliferant weapon programs.

41 invo]ving such nations in multilateral

export control arrangements could have two benefits. First, should they establish reasonably effective export control systems, the new suppliers

would be less likely to contribute to proliferation.

Second, their very membership in the international groups could undermine assertions that the nonproliferation regimes are discriminatory and intended to preserve the economic and military

advantages of the more prosperous nations. On the

other hand, if the emerging supplier is itself a proliferation threat, it might acquire easier access to

items it needed for its own weapon programs,

even as it helped control supplies to others.

India in particular—but other nations as well—

has long argued that the Nuclear Non-Proliferation Treat y discriminates unfairly against non-nuclear states. Part of its argument is that until all

states give up nuclear weapons, the other states

should not be forced to give up the nuclear option.

But another part of its argument can be summarized as follows:

. . . technology export barriers erected on the

grounds of national security are also aimed at

retention of Western industrial supremacy and

control of the global technology markets.42

When the United States persuaded Russia to

stop the transfer of cryogenic rocket motor

technology to India in 1993, a frequent theme in

the Indian press was that the “real” reason for the

U.S. action was to prevent commercial competition from the Indian space program.

The Clinton Administration’s proposed

changes in the Missile Technology Control Regime are designed in part to respond to such arguments. The President announced in his United Nations speech on September 27, 1993:

Now, we will seek to strengthen the principles of the Missile Technology Control Regime by transforming it from an agreement on

technology transfer among just 23 nations to a

set of rules that can command universal adherence.

43

%c SIX areas were:

A. C{mductlng b]lateral and multilateral discussi[ms at the political and technical level (m matters rel:it]ng u) the enhanccrmmt of expm

c(mtrt)l S} stems;

B, C(mductmg bilateral c(msultati(ms at the expert and government levels (m (Migatitms relating I{) mm-use of expwl ctmtrt)llcd items f~w

unapprtwcd purp)ses;

C. C(mctuctmg bilateral consultations (m specific multilateral expwt c(mtr(~l regimes and their implcnwntati(m and (m the technical parameters of the items and technol(~g]es c(nered by them;

D. Participating In seminars, ctmfcrences, and other multilateral meetings devotul to c(msidering CX.PM control issues,

E. Dlscusslng {)ppmunitics to train pcrs(mnel inwdvcd with expwt c{mtr(~l, the work of licensing and cust(m~s agencies, and

F. J(~mt cff~ms to expand c(}{~pcration in the area of export c(mtr(d.

‘.’ Text’ of Memorandum (m Export C(mtrols,’” FBIS-SOV-94010, Jan. 141994, p. 20.

~1 See Wllllanl C. po((er, Cd /n[erna[lona/,vl((/c(ir Tr(ulf ond Iyt)nl]rc)l[terotic)n.. The Challcnqe ol’the Emcr,q/rtR Sqy?ller.y (L~~ingt~m, MA;

. . c.

Lcxingtfm B(NAs. 1990) and The In(crnalionni MI YVIIC Bazaar: ThCI Nat Suppllcrr ,?’et)tork (B(~uldcr, CO w’estvlw press, 1994).

42 Brahnla Chellaney In The Global l)rf~mion o/ Milirory Te<hnolo<q>.. 7’he f’rot. ccdln,q Y (!/ o }iimL.~h[)p held at (he iJni\crsll> of”k+’[ fconsin,

Madwrr, I)ctember 6-8, 199/ (Madis(m, WI Center for Intcmat](mal C[){)perat](m and Sccurit~ Studlcs, Llntkcrs]ty {~f Wlsc(msin), p. 19.

‘~presdent BIII Cllnttm, “A& Jrcss U) the 48th Scssi(m of the United Natl(ms General Assembly,.’ New York, N}’. Sept. 27, 1993.
52 I Export Controls and Nonproliferation Policy

A White House fact sheet explained the proposed bargain with developing nations seeking to

import space launch vehicle technology:

We will support prudent expansion of the

MTCR’S membership to include additional

countries that subscribe to international nonproliferation standards, enforce effective export

controls and abandon offensive ballistic missile

programs . . . We will continue to retain a strong

presumption of denial against exports to any

country of complete space launch vehicles or

major components . . . For MTCR member

countries, we will not encourage new space

launch vehicle programs, which raise questions

on both nonproliferation and economic viability

grounds.

The United States will, however, consider

exports of MTCR-controlled items to MTCR

member countries for peaceful space launch

programs on a case-by-case basis. We will review whether additional constraints or safeguards could reduce the risk of misuse of space

launch technology .44

Critics of this new policy stress the risks, arguing (as the Administration’s statement acknowledged) that space launch technology is in some

ways analogous to plutonium reprocessing

technology: it is economically unsound and carries inherent proliferation risks. First, the nations

that do manufacture and launch space launch vehicles all lose money doing so. 45 Second, space

launch rocket technology is eminently transferable to ballistic missile programs. A nation that is

complying with nonproliferation norms today

could change its mind tomorrow, and still be in

possession of missile technology; no plausible

safeguards are likely to change that potential.

Therefore (from this point of view), in the interests both of fostering the economic welfare of developing nations and of limiting missile proliferation, the transfer of rocket technology should not

be used as an incentive to adhere to nonproliferation regimes (for a supporting example, see box

5-2).

A contrasting view is that the Administration’s

changes on missile export policy do not go far

enough. As one analyst has pointed out, NASA is

not “economically viable,” but the United States

still supports its own space launch program for

other motives. Countries with fledgling space programs are unlikely to be persuaded that these motives are legitimate for the United States (or Russia, China, France, and Japan) but not for

themselves. Nor will they all accept the concept

that they must forswear missile programs for

themselves while the existing members of the

MTCR are entitled to keep theirs.% Given the

modest benefits proposed (“case-by-case” consideration) and the major concessions asked for (full

adherence to nonproliferation norms), it is not

clear that in practice there will be many takers for

the new Administration Policy on the MTCR.

In its draft for the EAA of 1994, the Clinton Administration proposed providing for (individual

validated) license-free exports of controlled items

to and among members of a multilateral regime. In

addition, under this draft law, nonmembers could

be granted adjustments in access to controlled

items depending on their adherence to U.S. export

control policies. This more convenient access (under either provision) to dual-use technology items

might serve as an incentive for some developing

%ffice of the Press Secretary, The White H(mw, “Fact Sheet: N{mproliferati(m and Expmt C(mtrol P~)licy,’” Sept. 27, 1993.

JsHowever, selllng launch sewices to foreign or domestic commercial firms may help defray the costs of fLIlfilIing other govemnlental

purposes, such as national autommly in space-launch capabilities. In the case of Russia, it could be that space launch services could profit because of the sunk costs in space launch infrastructure and vehicles already produced primarily f(w military purposes.

~See ~tatenlent by L(~ra Lunlpe in “ne Administration’s Non-proliferation” and Exp)rt Control Policy, ’’Arms C~nlrO/ Tw@, vol. 23, N(). 9,

November 1993, pp. 12-13.
Chapter 5 Options for Enhancing Export Controls | 53

The September 20, 1993, launch failure of the Indian Polar Satellite Launch Vehicle (PSLV) can be Interpreted

to support the arguments for using export controls to deny launch vehicle technology to new entrants Although

this rocket was to place an Earth remote sensing satellite into a sun-synchronous polar orbit, It could also be

used as an Intercontinental ballistic missile The Indian Space Research Organization (ISRO) obtained key

technology for the second stage, Iiquid-fueled rocket motor from the French Societe Europeene de Propulsion

In the face of export controls, India developed other key technologies Indigenously—e.g., maraging steel and

solild propellant (HTPB) for the first stage motor An Indian journalist concluded before the launch failure that

It IS these and other Instances of organization foresight which saved the launch vehicle program when the U S

embargoed all sales to the ISRO These very same qualities WiII have to be revived in the ISRO if the launch vehicle

program IS to survive the trials ahead 1

These efforts to work around missile technology export controls apparently have not yet been fully successful On its maiden launch, the PSLV suffered a mishap after separation of the second stage (of four) that resulted

in the rest of the vehicle reaching too low an altitude to reach orbit ISRO officials reportedly concluded that the

next PSLV launch would have to be put back 2 years

ISRO officials had reportedly hoped to sell as many as 9 satellite launches on the vehicle between 1996 and

2000, thus brlnglng$100 milllon in business However since the PSLV development program had already cost

$144 milllon over 12 years, and since ISRO had said that it could produce the launchersatacostof$15 milllon

each, it iS not clear when if ever, the project would have produced profits 2 Now that the program has been set

back another 2 years arguments that the space launch business lsan economic Ioser for developing countries

seem even stronger

1 Gopa! Ral The H/nd~/ (Madras) Sept 11 1993 p 8 JPRS-TND-9035 Nov 10 1993 p 32

2 For reports on the launch failure and on cost estimates see K S Jayaraman, Launch Failure Dents Indias Space Plans Nature,

vol .365 (Sept 30 1993) p 382 and Tm Furmss PSLV FaJure Delays Ind[an Space Plans F/{ght/nternatlonal, Sept 29 1993 p 23

——

nations to adhere to supplier-regime guide] ines.

On the other hand, were these nations so well-behaved in the first place, license approvals probably would have been fort hcoming an yway.

47 The

removal of IVL requirements would probably be

welcomed by U.S. exporters who feel that current

regulations are too burdensome. The disadvantage to removing validated license requirements is

that the United States would lose the opportunity

to judge on a case-by-case basis whether the recipient country’s own export controls were strong

enough to prevent retransfer of some items.

Instead, it would have to arrive at a general judgment to that effect.

Bringing new suppliers or transshippers into

the established groups controlling exports is a

goal that could contribute to nonproliferation,

even if it may be difficult to accomplish in some

cases. One analyst has suggested that at the 1995

NPT renewal conference, the parties to the treaty

could formally acknowledge the obligation of all

of them, not just the nuclear weapon states, to re-
54 I Export Controls and Nonproliferation Policy

frain from assisting other states to manufacture or

acquire nuclear weapons. The Conference could

then endorse specific guidelines for national export control laws and procedures.48

One analyst has proposed additional measures

for fostering increased cooperation from the developing world:

1. the members of the supplier groups could provide statistics on license approvals and denials

to counter perceptions that export controls are

designed or function to impede economic development;

2. supplier groups could meet regularly with developing countries that adhere to nonproliferation norms to explain the reasons for nonproliferation export control policies and answer

complaints;

3. more ambitiously, the supplier groups could establish a global forum on international technology transfers and export restraints, seeking a

“North-South” consensus on how proliferation

could be constrained while civil development

is fostered; and

4. supplier nations could bias their development

aid in favor of nations that comply with nonproliferation and export control regimes.49

In attempting to better inform developing nations about the purposes and effects of export controls, the industrialized countries would have to

take care to avoid the appearance of simply dictating their own views of the proliferation problem

and how to deal with it. As noted earlier in this

chapter, some nations perceive economic discrimination even when the facts suggest otherwise.

Considerable diplomacy may be required to gain

an open-minded hearing for factual presentations.

Formally conditioning development aid on

nonproliferation compliance could also offend developing nations’ sensitivities. International development assistance programs might have a difficult time politically in deciding what degrees

and kinds of proliferation or nonproliferation behavior by what nations should lead to larger or

smaller aid allocations.50

The United States, for its part, might have difficulty reconciling its other foreign aid objectives

with the nonproliferation objective. It is one thing

to reduce assistance as a sanction for certain proliferation behavior; it would be another to reallocate aid given to some nation for one purpose (say,

supporting Israel and Egypt to bolster Middle East

stability) to some other nation as a reward for

cooperation on nonproliferation.

~~.wls Dunn in Haral~ Mu]]er and LCW is A, Dunn, Nuclear E.x]w-t Controls and Sui)ply Side Re,swaint.~: oplwn.ytw Rejim (Southampttm, UK: Prograrnnw for prt)rm~tlng Nuclear N(mpn)liferati(m, Study Number Four, (lct(ixr 1993), p. 28.

~gHara]d MU]{~r, ibid., pp. I ~- I ~.

~~or a discussion of attaching ~)]icy ctmdili(ms to foreign assistance, see Nicole Ball, ‘“Levers for Plowshares: Using Aid T(J Encourage

Military Reform,” Arm.! Conrro/ Today, vol. 22, N(). 9, November 1992, pp. 11-17.
Reducing

the Burdens

on Industry 6

T

he current U.S. export control system has come under

strong criticism from some U.S. industrial associations

and companies. As noted in chapter 4, in the section on

estimating the costs of the system, they complain that

many U.S. export controls both fail to produce any meaningful

results and place unfair burdens on U.S. exporters. From the

point of view of the effectiveness of export controls, it is desirable to have exporting companies see the system as fair and

just, so that they will have every incentive to help make the

controls effective-for example, by reporting possible illicit

buying attempts. From the point of view of U.S. competitiveness in international markets, it is desirable to place the least

constraints consistent with national security on exporting firms.

Some measures for reducing the burdens of the system on exporters could be carried out without impairing the effectiveness of

controls, and it can be argued that some of those measures would

even enhance effectiveness. There is inevitable controversy, however, over whether some burden-reducing measures would help

or hinder the effectiveness of controls in slowing proliferation.

REDUCE THE NUMBERS AND

PURPOSES OF CONTROLS

Exporting industries have been the strongest advocates of severely reducing the numbers of commodities on the Commerce Control List (CCL). The companies in these industries are understandably concerned about the burdens the export control system

places on them compared to companies from other countries.

There is a case to be made that limiting controls to a relatively

few key technologies could enhance their effectiveness. The

There is inevitable

controversy. over

whether some

burden-reducing

measures would help or

hinder the effectiveness

of controls in slowing

proliferation.

I 55
56 I Export Controls and Nonproliferation Policy

benefits of a much smaller export control list

might include the following:

●

●

●

■

feeling less burdened by the system, exporting

companies might be more enthusiastically

cooperative in helping to see that the remaining

controlled items do not fall into the wrong

hands;

with the United States arguing for a much

smaller range of controlled items and a smaller

range of reasons for controlling them, cooperation of other nations in export controls might be

easier to obtain;

the range of U.S. controls is broad enough that

other countries sometimes suspect commercial

motives to be behind U.S. attempts to enforce

controls; that reason for resistance could be reduced with a smaller list; and

government administrative and enforcement

efforts might be released from nonproductive

attempts to block exports that the buyers will

still find elsewhere.

These arguments are most persuasive when applied to the items controlled by the Coordinating

Committee on Multilateral Export Controls

(COCOM) industrial list, which is being phased

out (but which may be replaced in some form by a

successor agreement). Most U.S. nonproliferation controls coincide with those already winnowed by negotiation in the multilateral nonproliferation export control regimes. Thus,

controls over items related to weapons of mass destruction and missiles are the strongest candidates

for continuation if controls overall are reduced.

I Foreign Availability

Exporters have argued that if a commodity is

available from foreign sources that do not have

comparable export controls, U.S. export controls

are useless, since objectionable users can obtain

the items elsewhere and continue unhindered with

their weapon programs. ’ Proponents of unilateral

export controls argue that this argument is tantamount to condoning selling a gun to a criminal

just because he may have been able to buy it from

someone else. Some exporters may feel that they

should not be denied licenses to sell to such users,

on the ground that someone else will anyway.

Most, however, would not wish to do business

with users trying to build weapons of mass destruction. It is not the loss of these relatively rare

sales that exporters fear, but rather that the export

licensing process itself causes them to lose legitimate business to foreign competitors at the same

time that it fails to keep the proscribed items out

of the hands of proliferants. Industry representatives cited as an example of this problem the case

of high-performance computers, which have been

controlled both because of conventional militaryrelated applications and because of their potential

use in nuclear weapon and missile programs. The

Clinton administration announced in September,

1993, that it agreed computers no longer could or

should be controlled at previous levels (see below).

In the case of such ● ’national security” controls

(as opposed to the “foreign policy” controls,

which include items of proliferation concern), the

Export Administration Act (EAA) requires the

government to remove items from the list when

investigation shows that they are readily available

from foreign sources. In this context, “availability” means that it is possible to buy the item in

quantities and of quality comparable to that available in the United States.

One proposal for export control reform,

then, is to make timely employment of the test

I F[)r ~xamp]e, we Frederick p. Waite and M. Roy Goldberg, “Responsible Export Controls or ‘Nets to Catch the wind’?: The commerce

Department’s New U.S. Controls on Exports of Chemical Precursors, Equipment and Technical Data Intended (o Prevent Development of

Chemical and Biological Weapons,” Cah’jhrnia Western International LaHI Journal, vol. 22, 1991 -1992: 193-208.
Chapter 6 Reducing the Burdens on Industry | 57

of foreign availability to all items retained on

the CCL.* The Department of Commerce (DOC)

would be required to conduct frequent reviews of

foreign availability, without exporters having to

request such reviews formally. The United States

would remove unilaterally controlled items from

the CCL. It might propose removal of items from

multilaterally agreed export control lists if its review finds them available from outside the multilateral regime. An item might be found to be unavailable abroad for one of two reasons. First, the

U.S. producer might be the only source of supply,

and items that could substitute for the controlled

item could not be purchased elsewhere. Second,

all, or nearly all, of the principal suppliers might

have agreed to control their exports of the item in

the same way. A policy of attempting to control

only items that were not available from other

sources would lead to a shorter list and to fewer

losses of business from U.S. companies to foreign

competitors.

A policy of decontrolling goods or technology

that are available from other countries without

controls could lead to a vicious circle. Achieving

multilateral controls has usually required leadership by one nation, most often the United States.

Other countries may be more willing to control

new items (or exports of currently controlled

items to newly identified end-users) if the United

States demonstrates its own will to do so first.

Thus, proposals to limit U.S. export controls to

multilaterally controlled items have included provisions for at least temporary impositions of unilateral controls to allow attempts to reach multilateral consensuses Putting a legislative limit on the

term of unilateral controls does carry a risk: other

nations whom the United States is trying to persuade to follow suit can just stall negotiations until the statutory limit on the U.S. controls runs out.

Negotiating multilateral controls might then become more difficult in the absence of U.S. leadership by example.

Another objection to the strict foreign availability requirement is that in some situations the

United States, for moral reasons, does not want its

citizens to contribute to another nation’s program

to acquire weapons of mass destruction, whether

that prohibition would significantly delay the

weapon program or not. Requiring effective

multilateral export controls as a condition of

U.S. export controls removes the option of setting a unilateral standard for U.S. nationals.

Eliminating, or even putting a short time limit

on, unilateral controls could also inhibit the use of

export controls as an indirect form of sanctions

aimed at controlling weapon proliferation. In the

currently most publicized example, the United

States is denying high-technology exports to Iran

as a way of punishing Iran for its apparent pursuit

of weapons of mass destruction and its support of

international terrorism. Some of the denied exports-most notably jet transport aircraft that

Boeing wanted to sell the Iranian airline—are

nominally controlled as a sanction in punishment

of Iran’s support for international terrorism. But

U.S. Secretary of State Warren Christopher has

explained the actual intent of the U.S. controls is

to make Iran

. . . understand that it cannot have normal commercial relations and acquire dual-use technologies on the one hand, while trying to develop

weapons of mass destruction on the other.4

z Congressional testimony and a draft revision of the Export Administration Act by the National Association of Manufacturers stress this

Idea. See E.~pwt Control Rcfi)rm.. A Key to U.S. E.xp{v-( ,7WWYY; Poliqv Rccwnnwndatwns ( Washington, DC: National Association of Manufacturers, June 1993).

~lbid.

Jwamen Christopher, al a press c(mference in Luxemb(mrg, June 9, 1993, quoted by Elaine Sciolino, “U.S. Asks Europe to Ban ArrnsLinked Sales U) Iran,” NCM YorL Times, June 10, 1993, p. A-5.
58 I Export Controls and Nonproliferation Policy

Other countries have shown little inclination to

go along with this policy, and the aircraft sale

seems likely to go eventually to the European Airbus Industrie consortium.5

Even when the focus is on control of items that

could be used for weapons of mass destruction,

there is a further disadvantage to a strict requirement that the items be under rigorous multilateral

control. There is an inherent fuzziness in the

workings of export controls; as noted above, their

effectiveness is subject to a wide range of variables. Even when it is not possible to achieve

100% agreement and compliance on multilateral

controls among all possible suppliers, partially

effective controls may still be better than none

at all, depending on the financial and technical

resources of the buyer and the state of progress

of his weapon program. Therefore, although it is

reasonable to have a strong presumption against

unilateral controls, there may be instances where

controls that do not have universal support can

still be useful. Decisions for complete decontrol

should be informed by the best possible analysis

and intelligence data about current countries of

proliferation concern.

It maybe possible to persuade key suppliers to

withhold particular exports in special instances.

But it will be harder for the U.S. government to

persuade foreign governments to go along in those

instances unless it has a legal and regulatory basis

for imposing the same restraints on its own exporters, as well as a consistent policy of denying

exports in comparable situations. How long any

given control is worth pursuing before being given up as a lost cause is hard to specify in advance.

An alternative to a fixed (say, 6 month) term for all

unilateral, or less than unanimously multilateral,

controls would be to establish an explicit process

of accountability by officials entrusted with judging just how long an effort makes sense. Such a

process might, for example, include a periodic assessment of foreign availability for all controlled

items, coupled with an explicit justification to

Congress of the rationale behind continued controls for goods found to be available outside the

United States in comparable quantity and quality.

I Alternatives

Besides applying a strict foreign availability

criterion, another way to reduce the size of the

export control list is to narrow the scope of its

purposes. After the initial reforms of COCOM

controls with the end of the Cold War, the DOC

Office of Export Licensing went from handling

over 100,000-125,000 export license applications

a year to about 24,000 in 1992 and 25,000 in 1993.

With the end of COCOM and the further relaxation of controls on computers and telecommunications technologies in March 1994, the DOC

estimated that license applications would decline

by nearly half again.6 Many of the remaining license applications concern items controlled for

other purposes than the nonproliferation of weapons of mass destruction. Most of the remaining

COCOM or “national security” items relate to

possible conventional military applications. The

COCOM lists were designed primarily to slow

Soviet progress in a broad range of military

technologies. The fact that they might also slow

the development of the Soviet civilian economy

was seen as, if anything, an additional national security benefit of the regime. COCOM’S original

purposes became largely (though perhaps not entirely) obsolete with the breakup of the Soviet

Union.

But a new set of goals for controls over dualuse technologies related to conventional weapons

has not yet emerged. Late in 1993, COCOM members agreed to abolish the organization in the

spring of 1994, but to replace it with a successor

regime. At this writing, the goals and procedures

su s ~eexp)fi ~ontro]s” on Cefialn (,l.S..supp]led components of Airbus planes may prevent such sales in the shoti run, but substitution of

. .

European components seems likely in the longer run.

~ornas L. Friedman, “U.S. Ending Curbs (m High-Tech Gear to Cold War Foes,” New York fime~, Mar. 31, 1994, p. D5.
Chapter 6 Reducing the Burdens Industry | 59

of that successor regime remain unclear. Some

have proposed that the United States initiate an

explicit new nonproliferation regime aimed at

limiting the spread of advanced conventional

weapon technologies. Such a policy, aimed at

keeping particular types of weapons out of reach

of many nations, would require a different export

control strategy than one directed at restraining

the technical development of a single large military-industrial complex. In the absence of clearcut opposing blocks of allies, there is bound to be

less consensus about who should be the targets of

such a strategy. It is therefore likely to be more difficult to sell the strategy multilaterally than it was

to persuade states to participate in the original

COCOM regime.

A third way to reduce the size of export control lists would be to partially substitute reporting requirements for licensing requirements as a nonproliferation tool. That is, the

government could require firms to report, but not

seek a license for, the export of any items from a

published list of goods and technologies. This list

would be compiled from technical analyses of the

overall needs of programs for weapons of mass

destruction, not just the most critical items. The

objective would be to discover constellations of

imports that might serve as indicators of weapon

programs or clandestine acquisition networks. Although goods that might contribute to proliferation would still be shipped under this approach,

national intelligence organizations or multilateral

nonproliferation organizations could then utilize

this information to take action against specific

proliferant programs.

Such an export reporting regime would clearly

be most productive if it were multilateral: proliferants seeking to conceal their buying patterns

would have less opportunity to find alternative

sources. The current multilateral export control

regimes (Nuclear Suppliers Group [NSG], Australia Group, Missile Technology Control Regime

[MTCR], and the COCOM successor) would provide logical frameworks in which to place export

reporting agreements. However, even if the

United States, one of the world’s larger exporters,

were to establish a reporting list unilaterally, that

would probably significantly assist proliferation

analysts.

An export reporting list would probably be

larger than the current export control lists: an item

would be subject to reporting not just if it could

make a significant contribution to a weapon program, but also if it could serve as an indication of a

weapon program. Although the numbers of

manufacturers and transactions would be larger

than those now affected by export controls alone,

the burdens would be lessened: fewer exports

would be subject to complex regulations and licensing delays. On the other hand, as noted earlier,

exporters may resist revelation of their approved

licenses because of fears of revealing proprietary

data of use to competitors.

ELIMINATE THE “KNOWS, IS INFORMED,

OR HAS REASON TO KNOW” TESTS

The Bush administration’s Enhanced Proliferation Control Initiative and certain legislation led

to Export Administration Regulations requiring

Individual Validated Licenses (IVLS) for almost

any items that the exporter “knows “ might be

used in any way in a chemical, biological, or missile weapon program. 7 Late in 1993, the Commerce Department issued further guidance specifying that a license is required if the exporter

knows or is informed that an item will be directly

8 for nuclear weapon employed in such a program.

programs, the rule is stronger: a license is required

for any item that the exporter “knows or has reason to know’” will be used in such a program. Industry representatives, at least before the December 1993 clarifications, argued that the effect of

this policy is to require virtually all exporters to

7ne only~)thcr ~ountnes ~l(ha ‘.~now,le~geMI” rcgar~]ess of the nature of the conmlodity” are Gcmlmy and Japan.

858 Federa/ Regls/er 68029-6803 I (~c. 23, 1‘3).
60 I Export Controls and Nonproliferation Policy

establish costly programs to find out whether their

customers are involved in a proscribed activity. In

this way, they say, companies are forced to perform intelligence services for the government.

Moreover, the items exported, if available anyway

from uncontrolled suppliers, will not actually affect the outcome of proliferant programs. Meanwhile, government licensing and enforcement efforts go to monitoring exports to impose unilateral

controls that do not really make a difference.

Exporting firms opposing this policy have also

raised three other objections. First, although honest exporters will be exposed to liability, criminal

firms will simply not apply for licenses. Second,

many honest exporters are, nevertheless, not

aware of the sweeping nature of the “know” rule,

and therefore simply do not apply for licenses.

This fact puts those firms who do apply for licenses at a competitive disadvantage compared to

those who do not. Third, with respect to the ‘“is informed” part of the rule, firms have also complained that the government has informed only

some exporters about bad customers, foreclosing

that business for them while leaving other exporters free to trade and profit in ignorance with the

same customers. Commerce Department officials

have acknowledged that sometimes firms have

been informed only selectively about risky customers; they say they are going to improve that situation.

| Advantages of an All-Inclusive List

In its draft revision of the EAA, the National

Association of Manufacturers (NAM) proposed

barring the “knows or is informed” rule through a

requirement that the United States consolidate its

dual-use or “commercial” export controls into a

single list which full y enumerates all the products

for which an export license is required and all the

countries and specific end-users as well. This

would greatly simplify the exporting companies’

job in deciding whether a license application was

necessary and whether it was likely to be approved.

Such a published list might also help improve

international export control coordination. Many

countries lack the information and intelligence resources of the United States. One way of sharing

information about potential suppliers and proliferants would be to publish the U.S. lists of

target programs. Even in the absence of formal

export control coordination mechanisms, the U.S.

proscription list could have useful influence. Foreign governments and companies would be informed that the United States considered certain

firms, countries, and end-users to be proliferation

risks. The NAM draft bill, however, carries the

coordination a step further: the United States

would not maintain commodities or users on its

own list unless it could gain multilateral agreement among all the significant suppliers to impose

equivalent controls, and to do so as effectively as

the United States. Under the requirement that all

lists be multilateral, publishing the list would be

not only beneficial, but essential.9

Elements of this proposal exist in the current regimes. The NSG, the Australia Group, and the

MTCR all center on agreed, published lists of

commodities. On the other hand, the regimes do

not require the members to agree in advance on

who all the controlled countries and end-users

may be. Instead, they provide agreed criteria for

deciding whether an export should go forward.

| Drawbacks of an All-Inclusive List

The United States export regulations concerning

missile-related technologies do identify some

end-user programs to which exports are not permitted. The United States also publishes a Table

of Denial Orders listing entities barred from receiving licenses to export controlled items. Nevertheless, publishing the names of all suspect end91n ~&jl[lOn, the NAMbll]Prop)ses [hat n. I icenses be required for trade among adherents to the nlullilateral agreements, while a license

w(mld always be required for export to a m)n-member. The Administration draft EAA proposes the option for license-free zones, but does not

require them.
Chapter 6 Reducing the Burdens on industry | 61

users could have drawbacks. Using information

based on clandestine sources or methods of data

collection risks tipping off the observed parties so

that they can reduce or eliminate their vulnerabilities to those methods. Moreover, merely identifying front companies or illicit transshippers as suspect may lead them to change names and locations

or go out of business and reestablish themselves

in another form. Such actions could interfere with

ongoing investigations, or prevent break-up or

prosecution of illegitimate supply networks.

Sharing suspicions about prospective buyers also

risks the embarrassment, and possibly the injustice, of dissemination of information that turns out

to be incorrect. These risks (of compromising intelligence and of releasing unprovable suspicions), then, must be weighed against the benefits

of giving exporters better information about prospective customers. Since these risks are likely to

vary with each case, it can be argued that the government should have some discretion in publishing its concerns about buyers.

Another drawback to publishing complete lists

of proscribed firms and countries is that at least

some are likely to consider their names to have

been placed there unfairly. Firms or governments

may demand either that proof (which might have

been based on classified intelligence sources) be

revealed or that they be removed from the list. An

unsatisfactory response by the U.S. Government

might lead to unnecessarily y strained relations with

the objecting foreign governments. Questions

might also be raised domestically y or internationally about why some target countries are named

while others that should be are not.

On the other hand, when a license is denied, the

nominal consignee or end-user implicitly receives

information that he is “on the 1ist,” whether the list

is published or not. (However, if the end-user is in

a country with proscribed programs, and the denial is justified on that ground, possibly the particular consignee or end-user may not infer that it is

suspect and on the proscribed list.)

Transshipper and end-use data available to export control officials may change rapidly, putting

a premium on flexibility and last-minute changes

in 1icensing decisions. The NAM draft bill permits

‘“emergency” unilateral U.S. controls, provided

that the list is published. It does not, however, appear to allow for any discretion by licensing officials based on last-minute or classified information.

I Arguments for the “Know” Rule

Defenders of the “knows or has reason to know”’

rules argue that exporters who may be trading with

a proliferant end-user find it too easy to look the

other way, or to fail to report what they know, as

long as their own particular export is not on a specific control list. Suppose, for example, that

another nuclear proliferant chose to follow the example of Iraq and build calutrons to enrich uranium. When a military research establishment

bought parts suitable for use in calutrons, that

might be an indicator of a nuclear weapon program; the supplier might realize that, but not feel

obligated to inform its own government. The government might feel, however, that a) the supplier

should not be aiding a nuclear weapon program

(whatever his competitors might do) and b) that it

should report its knowledge of the existence of

such a program and of the possibility that calutrons might be under construction.

Supporters of the “know” rule or (in the case of

nuclear-related items) the “reason to know” rule

also argue that in reality U.S. exporting firms do

not have to worry that they will be subjected to extraordinary demands to probe deeply into the character of end-users of relatively innocuous products. They point out that the stronger form of the

rule (“has reason to know”) has existed for some

time for nuclear exports and in other legal areas.

The judicial system has not generally permitted

unreasonable interpretations of what constitutes a

‘*reason to know. ” 10 In practice, no firms appear to

I ~SCC Scn. John G]Cnn, “omnibus NLJC]CM PUJ] ifcrat](m c{)ntrx)l Act of ] ~!)~. A section-by-section” ~’scrlpllon.’” ~’(Jn,~ref$fon~J/ ~cf”or~

May 27, 1993), Daily cd.. S6773.
62 I Export Controls and Nonproliferation Policy

In December 1993, the Department of Commerce provided further guidance to exporters on their responsi -

bilities under the “know” and “reason to know” rules governing applications for exports items not on the Commerce Control List that might be going to activities involving design, development, production, stockpiling, or

use of missiles or weapons of mass destruction. Here are excerpts from this” ‘Know Your Customer’ Guidance”

(A.) Decide whether there are “red flags. ” Take into account any abonormal circumstances in a transaction that

indicate that the export may be destined for an Inappropriate end-user or destination Commerce has developed

Iists of such red flags that are not all-inclusive but are intended to illustrate the types of circumstances that should

cause reasonable suspicion that a transaction WiII violate the EAR [Export Administration Regulations].

(B.) //there are "red/flags, “require. absent ’’redflags"... there is no affirmative duty upon exporters to Inquire,

verify or otherwise “go behind” the customer’s representations. However, when “red flags” are raised information

that comes to your firm, you have a duty to check out the suspicious circumstances and inquire

(C.) Do not se//-b/red. Do not cut off the flow of information that comes to your firm in the normal course of business An affirmative policy of steps to avoid “bad reformation” would not insulate a company from liabilty

Employees need to know how to handle “red flags “ Knowledge possessed by an employee of a company can be

inmputed to a firm so as to make it Iiable for a violation This makes it Important for firms to establish clear policies and

effective compliance procedures to ensure that such knowledge about transactions can be evaluated by responsible

senior officials

(D.) Reevaluate all the informaftion after the inquiry... If [the “redflags’’ can be explained or justifled] you may

proceed with the transaction [Otherwise]... you run the risk of having had “knowledge” that would make your action

a violation of the EAR

(E.) Refrain from the transaction disclose the information to BXA[Bureau of Export Administration] and wait...

Industry has an important role to play in preventing exports and reexports contrary to the national security and foreign

policy interests of the United States BXA WiII continue to work in partnership with industry to make this front line of

defense effective, while minimizing the regulatory burden on exporters

As can be seen, the regulations as explained by Commerce do not require firms to initate intelligence operations. At the same time, they do seem to require a thorough understanding of what “red flags” to look for and a

systematic program of company compliance policies and procedures. Although companies exporting toilet

paper or Iight bulbs would not have to be concerned about their products being directly employed” in proliferation activites, other companies might have to make intelligent guesses about what combinations of their products and customer red flags should be reported to Commerce.

SOURCE 58 Federal Register 68029-68031 (Dee 23, 1993)

have been penalized for having failed to apply for which risks helping a weapon program, but which

a license for something that they are alleged to

have known would be used in a banned project. In

its December 1993 guidance to exporters, the

DOC spelled out in greater detail what is expected

of exporters under the “know” rules. See box 6-1

for excerpts from that guidance.

There are arguments in favor of maintaining a

“know” rule. First, it gives the government a safety net by allowing the application of export controls when it learns about a pending transaction

is not explicitly covered by the current Commerce

Control List. Second, it improves the government’s ability to obtain information about possible weapons proliferation programs by requiring firms who come into such information, or who

encounter a “red flag” (the term in Commerce Department guidance) that should arouse suspicion,

to pass the information along to the government.

Third, many companies would themselves prefer

not to deal with end-users developing weapons of
Chapter 6 Reducing the Burdens on lndustry | 63

mass destruction, whether their products are critical to those programs or not. Procedures for the

government to inform them of the character of

their buyers may well save them from public embarrassment later on.

A weakened alternative to the “knows or is informed” rule would be a simpler ‘*is informed”

rule. Today Germany has a “knows or is informed” rule applying to all its dual-use technology exports, not just those for weapons of mass destruction. In negotiation with other European

Union (EU) partners, however, Germany has apparently indicated a willingness to settle for the “is

informed” part of the rule for EU regulations, and

for that to apply only to goods destined for programs to produce weapons of mass destruction

and missiles (i.e., to hold exporters responsible for

applying for licenses for unlisted goods only when

the government informs them that they may be

utilized in such a program). ’ If the United States

were to establish this rule, then at least the government would retain the legal ability to stop risky

transactions about which it had obtained intelligence, even if it could not expect companies to report the “red flags.”

Another alternative to subjecting the export of

all commodities to the “knows or is informed”

rule would be for the government to generate a

separate control list of products or technologies

that, although not listed as requiring export licenses, could be significantly useful in proliferant

programs. (A variation on this idea is presented

above: there, an expanded list would be subject

only to reporting requirements, not to licensing.)

The exporting companies would then be responsible only for knowing or having reason to know

whether recipients of those particular items were

engaged in illicit activities. The firms, if in doubt,

could ask the government for advisory opinions

on prospective buyers. The government could

also make the companies’ job easier by publishing

those advisory opinions about particular end users

so that other firms could be forewarned. The government could further supplement its published

lists by indirectly assisting private organizations

in developing lists of suspect end users from public sources.

END UNILATERAL REEXPORT

CONTROLS ON EXPORTS TO

COOPERATING COUNTRIES

The United States may require, as a condition of

granting an export license, that the receiving party

guarantee that it will not reexport the controlled

item to a third country. In the past, some Europeans have resented U.S. imposition of reexport

controls as attempts at extraterritorial enforcement of U.S. laws. 2 U.S. exporters have argued

that when foreign competitors do not require such

reexport assurances, they have a better chance of

making sales. If the country of the first user is enI I See H. Mul]cr et. a]., Fr<)nl Bla(k .Yhcep I() While Angel? The Ne\t German L-.xpurl Control Policy, PRIF Reports No. 32 (Frankfufl an)

Main, Gem~any: Peace Research Institute Frankfurt, January 1994), p. 54.

121n 19~ ~ Na(lOnaI Acaden]y of Sciences study panel de]egatlon repofled aflcr a European fact-finding “ission:

Through(wt Europe there was a str(mg adverse reacti(m to U.S. expmt c(mtrt)l ~)licy, in particular its extraterrittmial aspects. The

Europeans have major problems with U.S. c(mtrf)ls (m the reexp)rt by any c(mntry of U.S.-origin items. Nearly all the Europeans with

wh(m~ the delegati(m met th(mght their country was doing an adequate job of maintaining t~f a d(mwstic ex~mt c(mtrt)l regime. They

argued, therefore, that U.S. reexport ctmtro]s (m COCOM items were t-x~th unnecessary and an unneeded intrusi(m. In a sense, such

c(mtrols were seen as a threat to nati(mal sovereignty and as driving a wedge between the United States and Eur(}pe.

Panel (m the Future Design and Implementa[i(m of U.S. Nati[mal Security Expwt C(mtn)ls, Finding Common Ground: U.S. E.;porr Confro/.~

~n a Chan~ed G/oba/ Eni)ironrnenl (Wash ingt(m, DC: Nati(mal Academy Press, 199 I ), p. 268. See also Jan Htkkema. ‘The European Perspective (m Proliferati(m Expwt C(mtro]s, “’ in Kathleen Bailey and R(hcrt Rudney, eds., Pro/iferafion and Expwf Con[rols (Lanharn, MD: Un Ivers ity Press of America, 1993).

On the other hand, J. Da\id Richardson, Sir~ng Up U.S. E.rpor/ 1)~.r~ncenfi~es (Washingt(m: Institute for intemati(mal Ec(momics, 1993),

found no statistical evidence that U.S. exports to COCOM partners fell below what (me w(mld have expected with(mt reexpwt controls. in addi -

ti(m, DOC officials argued to OTA in late 1993 that, alth(mgh U.S. reexpmt c(mtrols may have led to tensi(ms with COCOM partners in the past,

more permissive reexport provisions in the Exp(wt Administrati(m Regulati(ms had since largely addressed the partners” c(mcems.
64 I Export Controls and Nonproliferation Policy

forcing export controls equivalent to those of the

United States, then it should not be necessary for

the United States to demand that it be given the

right to judge further exports. The problem is

greatest when other countries have not agreed to

the same rules as the United States (for example,

in banning the sales of commercial aircraft to

Iran); or when they have agreed to the same controls but are unable or unwilling to enforce them

effectively.

For nonproliferation controls, the problem

does not appear to be as great. The NSG members, for example, have agreed that they will all require reexport licenses for the nuclear-related

dual-use items that they export. This could be

another issue, therefore, that is best separated

from negotiations over how to revamp COCOM

controls.

STREAMLINE THE APPLICATION

PROCESS

Industry representatives have complained that the

sometimes lengthy decision process for U.S. export controls has placed them at an unfair competitive disadvantage with respect to foreign suppliers. Although average license processing times

are short, some license decisions are delayed by

the interagency reviews conducted to assure that

some applications receive the most thorough scrutiny from all the relevant experts and agency

standpoints. Commerce officials point out that although the changes in COCOM requirements

have reduced the annual number of license applications from around 125,000 to around 25,000,

the remaining 25,000 are the most difficult to analyze. Defense Department officials argue that considerable progress has already been made in shortening license review times. 3

The Administration EAA draft proposes assuring that nearly all license applications would be

either resolved or referred to the President within

90 days of filing with the DOC. If no referral to

other agencies were required, the license would be

approved, or the applicant notified of DOC’S intent to deny it, within 9 days. If the application

were referred to other agencies, they would have

to recommend approval or denial within 30 days;

if they should fail to act, they would be deemed to

have no objection to the export. If the agencies involved disagreed, an interagency committee

would review the case and its chairman would

make a recommendation to the Secretary of Commerce. If one or more agencies objected to that

recommendation, they could appeal it to a higher

level interagency process which would either resolve the dispute or refer it to the President—

again, all within the 90-day period that began with

DOC’S receipt of the application.

There seems to be no reason why, with sufficient resources, current license decision deadlines

could not be shortened to the times proposed in the

Administration bill, or even less, without diminishing the quality of analysis and review that the

license applications receive. This might be accomplished by:

■ increasing the personnel needed to process licenses;

■ streamlining interagency review processes,

perhaps by detailing expert personnel to a central review office where their full-time work

would be 1icense review; or

■ developing the kinds of computer network resources described earlier in this report.

These measures would, however, cost additional funds that the executive branch has not reI J1n ca]endm year 1993 the average processing time for licenses not referred to other agencies was 10 days; the avemge for referred licenses -,

was 49 days; the average for all licenses was 3 I days. The DOC Inspector General reported in 1993 that from Jan. 1 to Sep. 30, 1992, 9,004

licenses not referred to other agencies t(x)k an average of 9 days to process; 8,695 others, referred to other agencies, took an average of 50 days.

See OffIces of Inspector General at the U.S. Departments of Commerce, Defense, Energy, and State, “The Federal Government’s Export Licensing Processes for Munitions and Dual-Use Commodities: Special Interagency Review,” September 1993, p. A-5.
Chapter 6 Reducing the Burdens on Industry | 65

cently been willing to allocate to export control

management.

ANALYZE AND PUBLISH THE

ECONOMIC COSTS

Some U.S. exporters have argued that the government imposes export controls without adequate

consideration of the costs they will impose on

U.S. industries. They have proposed, therefore,

that assessment of the costs of controls should be

made an integral part of the export control process. One analyst suggests that the new Export Administration Act:

. . . .should require timely annual reports on the

quantitative effects of US export controls on US

export competitiveness . . . Such reports should

include sectoral and product detail, and should

also attempt to size up effects of export controls

on US direct investment and alliances abroad

and on foreign direct investment and alliances in

the United States. 14

This analyst suggested that the statistical techniques he used to study the question of national security controls on exports to Communist countries

could be applied in such reports. They probably

can be used, but assessing the economic effects of

particular export control measures would require

more specific and detailed data than the current

export control data management system yields.

First, analysts would need to be able to break

down license applications into their individual

product components and assess the values of each

type of component affected. (Under the current

system, the values of exports affected can only be

reported by the total value of the items falling under various Export Control Classification Numbers, not by the exact descriptions of the items or

by the reasons for which they are each controlled).

It would also be desirable to develop a means of

comparing the types of products controlled with

the categories of products for which the Bureau of

the Census collects export data. Second, analysts

would need some means of assessing the amounts

of business forgone because exporters were deterred by the licensing process from even attempting to make some sales, because the licensing

process deterred buyers from carrying through orders, or because buyers went first to suppliers in

other countries with less burdensome controls.

Estimates on forgone sales would depend heavily

on exporting firms’ perceptions and judgments;

some means would have to be found of compensating for possible biases in their perspectives. ] 5

Analysts making economic impact assessments of national security (COCOM) export controls would also have to conduct surveys of businesses that maintain internal control mechanisms

to qualify for distribution licenses (which permit

them to avoid applying for IVLS). The report writers would need information on the costs of maintaining such internal mechanisms and estimates of

the competitive disadvantages or advantages they

may produce. For nonproliferation controls,

though, the costs of qualifying for distribution licenses do not apply, since such licenses are rarely

granted for those items.

Insofar as export controls help stem proliferation (or achieve other objectives), the costs of going without certain export controls should also be

given weight in assessing the net benefits and

I +j~~ J, David Richardson, .’&~monlic Costs of US Exp(Jrt Cc)ntrOk,” Statement bef(~rc the Subct}rnmi(tee (m Ec(momic Policy, Trade, and

En\ ]r(mment, C(mmllttec (m Foreign Affairs, U.S. H(msc (}f Rcprescntat]\cs, NtJv. 18, 1993 p. 12. A similar pro~~sal for fornlal evaluation of

the costs {Jf ctmtrt)ls IS found in BcnJanlln H. Flowe, Jr., .’Testln](my bef(m the Subcommittee on Ec(momic Policy, Trade, and Envir(mrnent of

the H(mse C[mm~ittec (m Foreign Affairs,” June 9, 1993, pp. 8-9.

1‘An altcma[l} c to this dircc[ ~n)ptrica] approach wimld be to use the n]eth(~d applied by Richardson, Si;irr~ Up U.S. E.~p~rt Disin~’en[i~’eS,

op. cit. That method in~ olved a) estimating the Iek cl of twerall expwts (t)r, at best, expwts categorized b) the broad Standard International Trade

Classlficati(m system) that the United States sh(mld expect to send to other countries depending (m their ]nc(me, p~pulation, and geographical

distance: and b) estlnlating the sh(mfall fr(m those levels of e~pmts to c(mntries subject I(} c(mtrols. Whatever else the advantages or disadvantages of this n~e(hod, i( w III be difficult [() appl~ specifica]]y to n(mpr(~]iferation controls” until gl(~hal trade statistics become available for the

specific :(Mds c(mtr{)lled.
66 I Export Controls and Nonproliferation Policy

costs of those controls. That is, the potential costs

of proliferation taking place should be weighed in.

This kind of assessment, though, as noted in the

first section of this report, is an even more difficult

task. The issue is not merely what the costs of

proliferation would be, but what the probability of hypothesized proliferation events would

be with and without the controls in question.

Some argue further that, at least in the case of

nuclear nonproliferation controls, the national obligation under the Nuclear Non-Proliferation

Treaty (NPT) to refrain from helping other nations

acquire nuclear weapons outweighs any likely

economic costs of nuclear-related dual-use export

controls; therefore, those costs should not be an

important consideration in whether the controls

are maintained or not. This interpretation, however, has not been subscribed to either by U.S. administrations or by other NPT members.

On the other hand, a benefit for nonproliferation efforts may result from better U.S. and international data collection on the economic effects

of some kinds of export controls. Better information about the actual patterns of trade in proliferation-relevant commodities could lead to a better

understanding of the consumption patterns and

supply networks of potential proliferants.

The Clinton administration’s draft EAA states

as U.S. policy:

. . . to ensure that U.S. economic interests play a

key role in decisions on export controls and to

take immediate action to increase the rigor of

economic analysis and data available in the decision-making process.
——- ——

Appendix A:

Estimating

the Economic

costs of

Export Controls

D

iscussing Clinton Administration changes in export control policy for computers, then-Deputy Secretary of Defense William Perry said that the economic burden to exporters imposed by controls on computers was ". . . a

significant factor, but I do not know how to quantify it.” 1 This appendix illustrates the difficulties in trying to assign economic

costs of nonproliferation export controls in the U.S. machine tool

industry. First, however, is a discussion of the general difficulties

of finding meaningful data.

DATA

The Department of Commerce (DOC) computer system for managing export control application reviews began as a means of simply tracking the status of applications. A weakness of the system

A

is that it is not designed to yield certain kinds of aggregate data

that would help assess the economic impact of controls. The basic

unit of record keeping is the license application. After determining whether a given product requires an export 1icense, a company

may need to apply for an Individual Validated License (IVL) to

export the good to a specific buyer. However, a single license application may cover multiples of the same article, or it may cover

several types of article, each with its own Export Control Classification Number. It may also include items that, if they were not to

be shipped with a controlled product, would not require a 1icense.

(The Department maintains a “Commerce Control List” that

Then-Deputy Secretary of

Defense William Perry

said that the economic

burden imposed to

exporters by controls on

computers was “. . a

significant factor but /

do not know how to

quantify it. ”

1 wl]l ianl J. pew, trans~rlpt of Breakfas[ with Reptmers, (kt. 15, 1993 (~’~nue not

state(l).

167
68 I Export Controls and Nonproliferation Policy

specifies the kinds of goods and technology that

are subject to export controls. Although some

control numbers may be assigned each to a single,

narrowly defined product, others may cover a

broad range, and may contain either very general

descriptions or large sublists of commodities.)

The result of this system is that the Commerce

database can be searched either for numbers of license applications or for aggregate values of proposed shipments in licenses containing specific

control numbers. But. short of individually examining each license application, it is not possible

to determine the values of specific kinds of exports when several kinds are included in single licenses. In addition, licenses frequently are

granted on the basis of 2-year forecasts by the applicants. The DOC has no way of knowing whether the licensed transactions actually take place.

Given the shrinking development periods and lifecycles of high-technology goods, 2-year licenses

may never be fully utilized.

Complicating matters is the fact that the Export

Control Classification Numbers bear no relation

to the ways in which other trade statistics are kept

(e.g., the Bureau of the Census’ export and import

record system2). Thus, it becomes difficult to determine the actual portion of a particular industrial

sector that is affected by the requirement to apply

for an export license.

Even if such numbers could be determined,

however, they do not tell the story of sales not

made either because the buyers chose to shop in

nations with less cumbersome export restrictions

or because potential sellers chose not to bear the

costs they perceive to be imposed by the system.

CASE STUDY: MACHINE TOOLS

Machine tools cut and form metals or other hard

materials with varying degrees of precision.

Sometimes they are used directly in manufacturing, and sometimes they are used to make the machines that produce other articles. They are essential to civilian industry, but they have a range of

military industrial applications as well. They are

useful for manufacturing many types of conventional weapons and vehicles. They are also useful

for building nuclear weapons, for manufacturing

high-speed centrifuges that can enrich uranium to

go into nuclear weapons, and for making precision

missile parts. Numerically controlled (usually

meaning computer-controlled) machine tools

meeting certain performance specifications are on

the Commerce Control List (CCL) for both nuclear and missile nonproliferation reasons. Related computer hardware and software are also on

the list. In addition, some tools not on the list for

nonproliferation reasons are there for national security, i.e., Coordinating Committee on Multilateral Export Controls (COCOM), reasons.

The U.S. machine tool industry declined dramatically between the 1970’s and the 1980’s: in

constant 1982 dollars, shipments declined from a

high of $5.6 billion in 1980 to $2.2 billion in 1992.

Thus, if the entire industry were considered to be

one corporation, its sales in 1992 would have

ranked only 159th in the Fortune 500 list.3 In exports:

■ Total U.S. machine tool exports in 1992 were

slightly over $1 billion. The industry thus depended on exports for about 34 percent of its

2The Census Bureau (since 1989) gathers trade statistics using the Hammnized System (HS), which many countries use to facil itate c(mlparison of international trade by commodity for various countries. The classificati(ms of products in the HS bear m) relati(mship either to the Export

C(mtroI Classificati(m Numbers or to the product descriptions on the Commerce Control List.

“’The Fortune 500 Largest U.S. Industrial Corporations,’’” For/une, Apr. 19, 1993, p. 190; with shipments estimated at $3.02 billion in 1992

dollars, if the industry were a single corporation it would have ranked between the Berkshire Hathaway company of Omaha and the Jefferson

Snmtilt company of St. Louis. The number one c(qx)rati(m, General Motors,” had sales at-xwt 44 times larger.
Appendix A Estimating the Economic Costs of Export Controls | 69

m

■

●

revenues. (The machine tool industries of other

major producing countries are even more dependent on exports. See figure A- 1 for distribution of the world machine tool export market.)

Machine tools accounted for about 3.4 percent

of U.S. durable goods exported in 1992.

Import penetration is high—in 1982 imports

accounted for 26.4 percent of machine tools

consumed in the United States, but by 1992

they were 46.3 percent of consumption (even

though, for several years beginning in 1987,

"vo]untary restraint agreements” between the

United States and several other machine tool

producing countries helped restrict exports to

this country).

In the 1980s the United States consistently imported a billion or more dollars per year more

machine tools than it exported. The difference

went down to about $700 million in 1992, but

consumption also declined.

All types of machine tools are not subject to export controls. Those subject to nonproliferation

export controls are primarily computer-control led

tools of relatively high precision. Numerically

controlled machine tools of all types accounted

for about $304 million, or 36 percent, of the U.S.

machine tools exported in 1992, meaning that

they accounted for about 12 percent of machine

tool industry revenues. Table A-1 shows that in

1992, the Commerce Department approved 572

applications containing over $454 million worth

of machine tools controlled for national security

(COCOM) or foreign policy reasons. In the same

categories of control, over $7 million in license

applications were denied. Recall that IVLS are for

2-year periods and that the figures represent proposed sales, not actual shipments (nor shipments

that would have taken place had a 1icense not been

denied). Moreover, machine tool shipments generally occur 9 to 18 months after orders are placed.

Nevertheless, the table suggests that a substantial

portion of U.S. machine too] exports require

All others 17°/0

France 2.90/.

United Kingdom 3.40/.

Tawan 3.9%. , —

Italy 9.1 0/0

w

.80/0

SOURCE Association for Manufacturing Technology 1993 and Office

of Technology Assessment 1994

IVLS. Note, on the other hand, that in the same

year ( 1992), only two approved applications, valued at $1.8 million, were for machine tools controlled only for nuclear nonproliferation reasons,

and only one application for such an export, valued at about $400,000, was denied. As COCOM

controls are further altered, the impact of export

controls on the industry should decline.

In terms of dollar value relative to the Gross

National Product (GNP) or the overall export picture, machine tools are not of great significance; in

terms of the dollar value of business subjected to

individual export licensing requirements, machine tools constituted about 2.5 percent.

Nevertheless, individual machine tool firms

may be at risk. They depend on exports to stay in

business and to supply revenues for research, development, and modernization. Since 1985, the

United States has imported 40 to 50 percent of its

machine tools. Machine tool industry advocates

argue that theirs is a strategic industry. building

machines

. . . essential to our military readiness and our

ability to respond quickly and effectively in the

event of a national emergency ...4

~~orllas T, Conne]]) .. S[atenlen[ on B~ha]f of AhfT—Th~ Association” f{~r Manufacturing Tcchnt~lo:j-&>fore” th~ Subccmmlittce (m Ec(Jmm]ic P~)lJcy, Trade, and Envir{mnwnt of [he House C(mm]ittec (m Foreign Affairs, ” Nov. 18, 1993, p. 2.
70 | Export Controls and Nonproliferation Policy

Licenses approved Licenses denied

Reasons for (Value $ (Value$ -

control Number millions) Number millions)

National security 312 309,4 6 6.3

(COCOM) only

National security 260 144,6 5 1,1

and foreign policy

Foreign policy only 1 0 0 6 0 0

Nuclear proliferation 2 1 8 1 0.4

only

Totals 575 455.8 12 7,8

SOURCE Department of Commerce, 1993

If the United States wants to maintain some elements of the U.S. machine tool industry for national security reasons, it may find that export

controls that put the industry at a competitive disadvantage can interfere with that goal. The industry is highly dependent on exports for its livelihood and its research and development resource

base; since it is a relatively small industry, business failure of a few key firms could have a major

effect on the indigenous supply of advanced machine tools. In addition, industry advocates point

out that U.S. companies are most competitive in

the technological “high-end” products—the ones

most likely to be subject to export controls.

| Costs to U.S. Economy

On the other hand, of the eight countries that

bought nearly 70 percent of U.S. machine tool exports in 1992, only two, China and Taiwan (together accounting for about 9 of those 70 percentage points) were likely to cause any proliferation

concerns and possibly evoke licensing delays. At

present, there is no concrete evidence to show that

export controls in general, let alone the small fraction represented by nonproliferation controls,

have in fact significantly harmed the industry.

Better data, however, might show otherwise and

give policy makers a better notion of whether one

type of control or another places either the industry or particular firms at risk.
—

Appendix B:

Complexities of

Setting Export

Control Thresholds:

Computers B

1993 COMPUTER EXPORT CONTROL CHANGES

In September, 1993, the Clinton Administration announced that it

would:

■ increase the threshold of computer capability above which U.S.

licenses to most destinations would be required from 12.5

MTOPS (Million Theoretical Operations Per Second)] to the

maximum that current Coordinating Committee on Multilateral Export Controls (COCOM) agreements would allow, 194

MTOPS;

● propose to COCOM partners to raise the multilateral threshold

further to 500 MTOPS;

■ propose to raise the definition of a supercomputer (in the bilateral control agreement with Japan) from 195 MTOPS to 2,000

MTOPS and review and update the requirements for safeguards on exported supercomputers;

■ expand the availability of distribution 1icenses for computer

exports; z and

■ eliminate the control threshold for shipments to COCOM and

COCOM-cooperating countries and increase the threshold for

] MTOPS is the unit of measurement In the Department of Commerce’s standard of

“CompJsite Theoretical Pcrf(mnance” by which c(m]putcrs arc compared for expwt control purposes.

2A chstributi(m I Icense allows a company to rmmit(lr its own exports for certain ilcms,

prowded it maintains an internal control mechanism and submits I(J periodic government

audits of Its exp)rt rcc(mis. See Expwt Adnllniswatl(m Regulations, 15 Cl% ~ 773.3 (Jan.

1, 1 993).

It is questionable how

significant a role

advanced computation

may play in improving the

designs of a nuclear

proliferant such as Iraq,

Pakistan, or North Korea,

especially in the absence

of nuclear testing.

I 71
72 I Export Controls and Nonproliferation Policy

shipments to many other destinations up to the

supercomputer level.3

The Department of Commerce (DOC) estimated that the first step would free about $30 billion worth of computer exports annually from the

requirement to obtain licensing authorization (see

figure B-1 ). That $30 billion constitutes nearly 52

percent of the $58 billion worth of computer exports roughly estimated by the DOC to require either distribution licenses or individual validated

licenses in fiscal year 1993 (note, however, that

distribution licenses generally do not cover items

controlled for nonproliferation reasons). The

higher threshold for defining supercomputers

would also freeup about $5 billion worth of computer exports annually from requirements for

placing safeguards on their end uses.

110-500 MTOPS

12.5-100 MTOPS $3B

00 MTOPS

$1 B

1

Required

individual

licenses <–- ,

\

v

)

Covered by

distribution

licenses

(Various levels)

SOURCE Department of Commerce, 1993

In ensuing negotiations, COCOM partners

agreed only to decontrolling computers below

260, not 500 MTOPS, although U.S. officials considered this only an interim step. At the end of

March 1994, the DOC announced that individual

licenses would no longer be required for shipments of computers up to 1,000 MTOPS to former

COCOM target countries. (The threshold would

remain at 500 MTOPS for sales to nations listed in

the Export Administration Regulations as being

of nuclear proliferation concern.4

) For the supercomputer control agreement, Japan would only

agree to raising the threshold defining supercomputers to 1,500, not 2,000 MTOPS.

UTILITY OF COMPUTERS FOR

DESIGNING WEAPONS OF MASS

DESTRUCTION

Computers at the level of today’s high-performance machines are not now—and never were—

an essential technology for designing fairly sophisticated nuclear weapons.

5 Computers can

contribute to weapon design by simulating the

complex, high-speed physical processes occurring in a nuclear weapon. However, they are far

from being critical tools that will make a difference in whether a country acquires nuclear weapons or not. Moreover, they are of most use to states

with nuclear testing experience, since the calculations performed in weapon simulations are validated with test data.

Advanced weapon designers rely heavily on

computers, and designers at any level of experience may also wish to use—although do not require—advanced computational capability. Nevertheless, the United States, drawing on its

extensive body of nuclear test data, developed

highly advanced nuclear weapons with computers

sTrade ~omotion and coordinating” Committee, U.S. Department of C(mm~erce, A Messagejtir Grow fh in a G/obal EwnomY: US E.vwr(s

= US Jobs (Washington, DC: U.S. Department of Commerce, 1993).

qln addltl(~n, c(~nlputers above 6 MTOPS would c(mtinuc to be denied to Iran and Syria, while Cuba, Iraq, and Libya continuedto k generally embargoed by the United States.

5For a discussion of the Utl]lty of high-perfomlance computers to a nuclear proliferant, see U.S. Congress, Office of Technology” Assessment, Technologies Underlying Weapons ofMass Destruction. OTA-BP-ISC-115 (Washington, DC: U.S. Government Printing OffIce, December 1993), pp. 125, 150-152.
Appendix B Complexities of Setting Export Control Thresholds: Computers | 73

vastly less capable than today’s high performance

machines. The Soviet Union and China developed

their nuclear weapons with even less computing

power.

6

High-performance computers are relatively

more important for advanced weapons, including

thermonuclear ones, than for first-generation fission weapons. They can also be useful in the design of ballistic missiles’ and other conventional

military systems. According to a 1986 Department of Energy Report,

With large-scale computers, we have been

able to improve our designs by optimizing design parameters, while reducing the number of

costly experiments in the design process. (Tests

involving high explosives have been reduced

from 180 tests for a 1 955-vintage weapon to

fewer than 5 for today’s weapons because of

computation.) 8

Moreover, although non-nuclear tests can provide information on the processes by which a nuclear explosion is triggered, no laboratory tests

(other than computation) can simulate the processes of release of energy from nuclear materials.

Therefore, the ability to carry out computer simulations can help weapon designers optimize the

designs they want to test. Lacking adequate computational capabilities, the designers of the first

U.S. nuclear weapons had to build in large margins of error, making the weapons much bulkier

and heavier than they are today.

A U.S. supercomputer available in the early

1980s (the period immediately preceding the

DOE report on supercomputer utility) was the

Cray X-MP, whose peak performance was about

235 MFLOPS (Million Floating Point Operations

Per Second—in this case roughly equivalent to the

Commerce Department’s MTOPS). This was

about half the threshold that the Clinton Administration proposed in September 1993 to decontrol

to most destinations and one-quarter of the March

1994 threshold.

LIMITS OF EXPORT CONTROLS

It is questionable how significant a role advanced

computation may play in improving the designs of

a nuclear proliferant such as Iraq, Pakistan, or

North Korea, especially in the absence of nuclear

testing. A judgment on this question would depend on:

■

m

m

■

whether and to what extent the proliferant were

able to obtain design information from one of

the nuclear powers,

how far both simulations and weapon designs

can be refined in the total absence of actual nuclear tests,

how capable the proliferant is of acquiring and

using the necessary software, and

the minimum practical thresholds of computational capability for carrying out the necessary

s emulations.

THE QUESTION OF FOREIGN

AVAILABILITY

Critics of the Clinton Administration’s relaxation

of computer export controls have pointed out that

the Nuclear Non-Proliferation Treaty (NFT) is a

legally binding undertaking”. . . not in any way to

assist, encourage, or induce any non-nuclearweapon State to manufacture . . .“ nuclear weapons; in this view, the phrase “in any way” is not

conditioned by whether other nations are providing assistance, by whether U.S. firms are losing

6SCC Jack Wt)rlt(m, “’St)me Myths Ahmt High-Perf(mnancc Ctmlputcrs and Their Role in the Design of Nuclear Weapms,” Worlt(m &

Associates Tcchmcal Report N(). 32. June 22, 1990, and “ExFn-t C’(mtrols ft~r High-Perf(Jmlance C(mlputers in the 1990s: A Reassessment,”’

W’orltfm & Ass(~]ates Techn]cal Rep{wt Nt). 43, Nov. 1, 1993. SW also the tes[imtmy of John Han ey hcf(w the U.S. H(mse of Representatives

Cc~nln]ittec on Science. Space. and Technology, Aug. 13, 1993.

‘See Gary M ilhollin, “’Designing the Third W{)rld B(mlb,” Wi.~con.\in Atadcm) Re\IeM, winter 1990-1991, pp. 15-18.

Xsee w]]] ,anl D. Wilson et a],. .-~e NCC~ for Supercomputcrs In Nuclear w~:l~)ns Design. “ manuscript, U.S. Department of Energy, Office

of M]lltary Applicat](m, January 1986, p. 9.
74 | Export Controls and Nonproliferation Policy

Proposed new control level

Sun Server

COCOM 1994 level

Silicon Graphics workstation

DEC workstation (Alpha)

Apple PowerPC (80MHz)

Pentium PC

Previous control level

486-66 MHz

386-33 MHz PC

260

4

~ ~

o 100 200 300 400 500

CTp (millIon theoretical

operations per second)

SOURCE Department of Commerce, 1993, Apple Computer, 1994,

and Off Ice of Technology Assessment, 1994

legitimate exports because of NPT compliance, or

by the degree of importance of the assistance.9

The U.S. Nuclear Non-Proliferation Act of 1978

(Section 309) does specify that the Department of

Commerce should control ‘*. . . all export items

[other than those licensed by the Nuclear Regulatory Commission] which could be, if used for purposes other than those for which the export is intended, of significance for nuclear explosive

purposes.” The definition of “significance” is not

given, but clearly nuclear weapon designers

would rather have computers than not, and would

rather have more computing power than less.

Proponents of the computer decontrols argue

that the potential effectiveness of controls should

be taken into account. Although computers above

the thresholds previously controlled by the United

States may be useful to proliferant nations, they

are increasingly available from non-U.S. sources.

Despite continuing to control supercomputers in

part because of apparent nuclear proliferation

risks, the United States was unable to persuade the

other members of the international Nuclear Suppliers Group to place them on the Group’s list of

multilaterally controlled dual-use technologies.

Although COCOM did control computers

above the 195 MTOPS level, Administration officials judged that agreement on this threshold

could not be sustained as COCOM underwent further post-Cold-War revision. Figure B-2 shows

the Composite Theoretical Performance (CTP) of

several U.S.-made computers, for which the central processing units have become or soon will become widely available throughout the world. A

1992 Commerce Department study of foreign

availability of computers showed that machines

exceeding the 12.5 MTOPS threshold were available from Brazil, China, Hong Kong, India, South

Korea, Singapore, and Taiwan—none of which

was a member of COCOM. Machines exceeding

60 MTOPS were available from Hong Kong, India, and Taiwan. The report predicted that widely

available first-generation workstations based on

the newest microprocessors would have CTP values ranging from 50 to 194 MTOPS. In general,

advanced microprocessor chips are not controlled, and would be very difficult to control because of their small size, low cost, and vast consumer distribution.

Not only are higher performance central processing units becoming more widely available, but

personal computers and work stations can be networked to process data in parallel, allowing them

to exceed the performance of any element in the

network. The hardware and software for doing so

is widely available and not difficult to use. 10 On

the other hand, some kinds of simulations may not

be amenable to parallel processing, but instead require direct access by a single central processing

unit to a large amount of random access memory.

gApp]ylng this ~trlcture t{) dual-use exPJ~s, however, has not been subscribed to either by U.S. administrations or by other N~ members.

Ioworlton,” .LExP)fi controls” ft)r High-Perfomlance Computers . . ..” ibid.
Appendix B Complexities of Setting Export Control Thresholds: Computers | 75

Depending on the job the weapon designer is try- and end-user controls on American computers

ing to do, parallel processing may or may not be penalized them while serving no useful purpose.11 

useful. Moreover, with the coming widespread availabilSince high-performance computers are avail- ity of new high-power commercial processors

able from foreign sources and are not essential to such as the Pentium, Alpha, and Power PC, U.S.

whether any nation acquires nuclear weapons, computer makers could lose much of the new marU.S. companies argued that requiring licensing ket likely to center on those chips.

I I Testimony of Tlnl Dwyer of Sun Mjcrosystcnls, speaking for the American Electr{mics Associati(m at a hearing of the SUhCtmlnlittee on

Ec(mornic Policy, Trade, and Envir(mment of the House Foreign Affairs Committee, June 9, 1993.
BWC

BXA

CCL

COCOM

CTP

Cwc

DOC

DOE

EAA

EAR

EC

ECCN

EPCI

EU

IAEA

Biological Weapons Convention

Bureau of Export Administration

(Department of Commerce)

Commerce Control List

Coordinating Committee on

Multilateral Export Controls

Composite Theoretical Performance

Chemical Weapons Convention

Department of Commerce

Department of Energy

Export Administration Act

Export Administration Regulations

European Community

Export Control Classification

Number

Enhanced Proliferation Control

Initiative

European Union

International Atomic Energy

Agency

Appendix C:

Glossary of

Abbreviations c

ISRO

IVL

MFLOPS

MTCR

MTOPS

NAM

NPT

NSG

OEL

PINS

PSLV

RWA

SNEC

Indian Space Research Organization

Individual Validated License

Million Floating Point Operations

Per Second

Missile Technology Control

Regime

Million Theoretical Operations Per

Second

National Association of

Manufacturers

Nuclear Non-Proliferation Treat y

Nuclear Suppliers Group

Office of Export Licensing,

Bureau of Export Administration,

Department of Commerce

Proliferation Information Networked System

Polar Satellite Launch Vehicle

Returned Without Action

Subgroup on Nuclear Export

Coordination

I n
I ndex

A

Abbreviations glossary, 77

ACDA. See Arms Control and Disarmament Agency

Agencies administering U.S. export control laws, 18

All-inclusive lists, 8-9,60-61

Approaches to dual-use export control policy

export enhancement emphasis, 13-16

nonproliferation emphasis, 12-13

“rogue” nation nonproliferation emphasis, 13

Arms Control and Disarmament Agency, 3,36

Atomic Energy Act, 33

Australia Group

current U.S. export controls, 9, 18, 59, 60

multilateral export control options, 5, 6, 42, 46,

49

B

Belarus, 6,49

Benefits of export controls. See also Enhancing effectiveness of export controls

background, 21-22

cooperation and enforcement variables, 23-25

introduction, 13

technology variables, 22-23

Biological weapons, export control effectiveness

23

Bureau of Export Administration, 4,38, 39, 48

BXA. See Bureau of Export Administration

for,

c

Census Bureau, 65

Central Intelligence Agency, 48

Checks and verifications, improvement of, 3-4,38

Chemical weapons, export control effectiveness for,

22-23

Chemical Weapons Convention, 23

China, 70

Christopher, Warren, 57

Clinton, Bill, 6,50

Clinton administration draft EAA

ACDA role changes and, 36

developing country cooperation incentives, 6,

52-53

economic impact statement option, 65-66

licensing administration options, 10,64-65

sanctions provisions, 4, 39-42

COCOM. See Coordinating Committee on Multilateral Export Controls

Commerce Control List sub-categories, 17-18,

55-57

Commerce Department

computer export controls, 30, 72, 74

computer system weaknesses, 67-68

export licensing role under EAA, 17-18

foreign availability question, 73-75

IVL guidelines, 59-60

“know” rules guidance, 26-27,59-63

licensing administration options, 3, 10,33-37,46,

64-65

list-making options, 7-9,57-58

machine tools industry case study, 69

pre-license checks, 4,38

Communist countries, 29. See also specific countries by name

Competitiveness issues. See International competitiveness issues

Computer export controls, 30,56,58-59,71-75

Coordinating Committee on Multilateral Export

Controls

background, 7-8

computer export controls, 58-59, 71-72, 74

current U.S. export controls, 18

economic impact assessments, 65

estimating costs of export controls, 29-30

multilateral export control options, 4-5, 42-44

phaseout of, 8,56

reexport controls, 64

Costs of export controls. See also Reducing the burdens on industry

economic impact statement option, 10,65-66

estimating example, 67-70

introduction, 1-2, 11-16

to exporting firms, 26-30

I 79
80 I Export Controls and Nonproliferation Policy

to the U.S. economy, 29,70

to the U.S. government, 25-26

Criteria for dual-use export control policy, 13-14

Current U.S. nonproliferation export controls,

17-20. See also Benefits of export controls; Costs

of export controls; Reducing the burdens on industry

Customs Service, 4,38

CWC. See Chemical Weapons Convention

D

Defense Department, 3,30,32,36,64

Developing countries, 6-7,51-54

DOC. See Commerce Department

DOE. See Energy Department

Dual-use controls under the Export Administration

Act. 17-18

E

EAA. See Export Administration Act

EAR. See Export Administration Regulations

EC. See European Community

Economic costs of export controls. See Costs of export controls

Economic sanctions, 4,39-42

Effectiveness of export controls. See Benefits of

export controls; Enhancing effectiveness of export

controls

Energy Department

Nuclear Referral List procedures, 36-37

Office of Arms Control project, 45

Proliferation Information Networked System,

32-33,34

Enforcement options

export control benefits assessment and, 23-25

extend sanctions, 4, 39-42

improve pre-license and post-shipment checks,

3-4,38

increase export control awareness among exporters, 3,37-38

increase information processing resources, 4, 39

increase law-enforcement resources, 38

reinforce the “know” rule, 38-39

Enhanced Proliferation Control Initiative rules, 8-9,

26-27,59-63

Enhancing effectiveness of export controls. See also

Benefits of export controls

enforcement options, 3-4,37-42

introduction, 1-2, 11-16

licensing administration options, 2-3,33-37

list-making options, 2,31-33

multilateral export control options, 4-7, 42-54

EPCI rules. See Enhanced Proliferation Control Initiative rules

EU. See European Union

Eurasia, 24

European Community, 47. See also European Union

European Union, 24-25,47,63

Export Administration Act of 1979, 1, 11, 14, 17-18,

56

Export Administration Act of 1994 drafts. See Clinton administration draft EAA; National Association of Manufacturers, draft revision of the EAA

Export Administration Regulations, 38-39

F

Foreign availability of commodities, 7,56-58,73-75

Foreign Commercial Service, 38

Foreign policy export controls, 18,56

Former Soviet Union republics, 6,23,25,47-48,

49-51

G

Galloway, John, 32

Germany, 24-25,63

Glenn, John, 34

H

High-performance computers. See Computer export

controls

High-technology industries, 30,56-59,71-75

I

IAEA. See International Atomic Energy Agency

India, 24,51

Individual Validated Licenses

Clinton administration draft EAA and, 6,52-53

EPCI rules and, 8,26-27,38-39,59-60

machine tool industry case study, 69

Industry burdens from export controls. See Reducing the burdens on industry

Intelligence-sharing increases, 5-6,48-49

Interagency review processes, 3,35-37

International Atomic Energy Agency, 45-46

International competitiveness issues, 7-16,56-58,

64-65,73-75

International cooperation. See Multilateral export

control options

Iran, 13,57

Iraq, 13,36

“Is informed” rules, 9,26-27,63

IVLS. See Individual Validated Licenses

J

Japan, 72
Index | 81

K

“Know” rules, 9,26-27,38-39,61-63

L

Libya, 13

Licensing administration options

formalize interagency review processes, 3,35-37

modernize the license-processing database, 2,

33-34

place statutory limits on processing times, 9-10,

64-65

publish economic impact statements, 10,65-66

publish nonproprietary licensing data, 2-3,34-35

seek cooperation from developing countries, 6-7

streamline the application process, 64-65

List-making options

create databases for list-making, 2, 31-33

EPCI rule options, 8-9,59-63

foreign availability of commodities and, 7,56-58

narrow the scope of list purposes, 7-8, 58-59

M

Machine tools industry, 68-70

Missile technology, export control effectiveness for,

23

Missile Technology Control Regime

current U.S. export controls, 9, 18, 59

export controls benefits assessment, 24, 60

multilateral export control options, 5, 6, 42, 46,

49,51-52

sanctions for violations of, 39

MTCR. See Missile Technology Control Regime

Multiagency reviews, 3,35-37

Multilateral export control options

end unilateral reexport controls, 63-64

enhance NSG coordination, 5, 44-46

expand international reporting to approvals, 5, 46

expand the NSG database idea, 5, 46

export control benefits assessment and, 23-25

foreign availability of commodities and, 56-58

increase intelligence sharing, 5-6, 48-49

seek greater cooperation from developing countries, 6-7, 51-54

separate COCOM succession from nonproliferation regimes, 4-5, 42-44

support development of FSU administration of

export controls, 6, 49-51

N

NAM. See National Association of Manufacturers

National Academy of Sciences, 43

National Association of Manufacturers

costs study, 27-28

draft revision of the EAA, 60-61

National security export controls, 17-18,29, 56. See

also Coordinating Committee on Multilateral Export Controls

NETMAP, 32

North Korea, 13

NPT. See Nuclear Non-Proliferation Treaty

NSG. See Nuclear Suppliers Group

Nuclear Export Reorganization Act of 1993,37

Nuclear Non-Proliferation Act of 1978, 18,74

Nuclear Non-Proliferation Treaty, 51,53-54,66,

73-74

Nuclear Referral List, 36-37

Nuclear Suppliers Group

current U.S. export controls, 9, 59, 60

dual-use export control guidelines, 24

enhancing NSG coordination, 5, 44-46

expanding the NSG database idea, 5, 6, 46-48

foreign availability question, 74

multilateral export control options, 42, 49

reexport controls, 64

Nuclear weapons

computational requirements to design, 72-73

export control effectiveness for, 22

0

OEL. See Office of Export Licensing

Office of Arms Control, 45

Office of Export Licensing, 7-8,33,58

P

Perry, William J., 30,67

PINS. See Energy Department, Proliferation Information Networked System

Private institutions as intelligence sources, 6,48-49

Publication

of economic impact statements, 10, 65-66

of information on suspect buyers, users, and

programs, 3,9,37-38

of lists of controllable items, 9, 63

of nonproprietary licensing data, 2-3, 34-35

R

Reducing the burdens on industry

economic impact statement option, 10,65-66

ending unilateral reexport controls, 63-64

EPCI rule options, 8-9,26-27,59-63

estimating costs of export controls, 26-30

increasing export control awareness among exporters, 37-38

introduction, 1-2, 13-16

licensing administration options, 9-10,64-66

list-making options, 7-9,55-63

Reexport controls, 63-64
82 I Export Controls and Nonproliferation Policy

Reporting requirements as export controls, 5,9,46,

59,63

“Rogue” nations, 13

Russia, 6,24,49-51

s

Sanctions in export controls, 4,39-42

SNEC. See Subgroup on Nuclear Export Coordination

Soviet Union. See Former Soviet Union republics;

Russia

State Department, 4

Subgroup on Nuclear Export Coordination, 37

Supplier-group export controls. See Multilateral export control options

T

Taiwan, 70

Technology variables in assessing export control

benefits, 22-23

Telecommunications technology controls, 58-59

u

Ukraine, 48

Unilateral imposition of controls, 2,7, 14,56-58.

See also Enhanced Proliferation Control Initiative

Rules

v

Verifications, improvement of end-use, 3-4,38

w

Weapons of mass destruction regimes vs. conventional weapons regime,

Y

Yeltsin, Boris, 6,50

—————————— - PLEASE PHOTOCOPY - DO NOT CUT PAGE

Order Processing Code:

*7394

4-5,42-44

Superintendent of Documents Publications Order Form

❑ YES, please send me the following:

copies of Export Controls and Nonproliferation Policy (92 pages),

S/N 052-003 -01371-1 at $5.50 each.

P3

Telephone orders (202) 783-3238

(The best time to cull is between 8-9 a.m. EST.)

To fax your orders (202) 512-2250

Charge your order. It’s Easy!

The total cost of my order is $ . International customers please add 25%. Prices include regular domestic

postage and handling and are subject to change.

Please Choose Method of Payment:

(Company or Personal Name) (Please type or print) ❑ Check Payable to the Superintendent of Documents

(Additional address attention line)

❑ GPO Deposit Account CuInn- n

❑ VISA or MasterCard Account

(Street address) IIllllllllllllllll!l l

11111 (Credit card expiration date) Thank you for

(City, State, ZIP Code) your order!

(Daytime phone including area code) (Authorizing Signature)

YES NO

(Purchase Order No.) May we make your name\ address available to other mailers? ❑ ❑

Mail To: New Orders, Superintendent of Documents, P.O. Box 371954, Pittsburgh, PA 15250-7954