Export Controls: Clarification of Jurisdiction for Missile Technology Items Needed
Released: 2001-11-08T00:00:00

Letter

Background

The United States along with six allies established the Missile Technology Control Regime (MTCR) in 1987. The Regime is a voluntary agreement among member countries to limit the proliferation of missiles capable of delivering nuclear, biological, and chemical weapons and their associated equipment and technology. The Regime consists of common export policy guidelines and a list of controlled items that include complete missile systems (rocket and unmanned air vehicle systems) and missile-related components and technologies that may have civilian applications. The list, known as the Equipment, Software, and Technology Annex (hereafter, referred to as the Regime Annex), is periodically updated to reflect technological advances. Member countries agree to control exports of Regime items in accordance with their respective national laws.

The United States fulfills its MTCR commitments primarily through the export control systems of the Departments of Commerce and State. These two systems were founded on different premises. The Commerce Department, through its Bureau of Export Administration, controls exports of most dual-use items and technologies under the authority of the Export Administration Act of 1979. As such, the Commerce Department is charged with weighing U.S. economic and trade interests along with national security and foreign policy interests. Dual-use items subject to the Commerce Department’s export controls are identified in the Commerce Control List of the Export Administration Regulations. In contrast, the State Department, through its Office of Defense Trade Controls, controls exports of defense articles and services under the authority of the Arms Export Control Act. The State Department’s export control system is designed primarily to further national security and foreign policy interests. The items controlled by the State Department can be found in the International Traffic in Arms Regulations, specifically within the U.S. Munitions List, which the State Department develops with the concurrence of the Department of Defense. The Departments of State and Defense are reviewing and revising different portions of the U.S. Munitions List on an annual basis, as part of the Defense Trade Security Initiative, to ensure that coverage of items on the list is appropriate.Exporters are responsible for determining whether an item they seek to export is on the Commerce Control List and, therefore, subject to the Commerce Department’s jurisdiction, or on the U.S. Munitions List and subject to the State Department’s jurisdiction.

With the passage of the National Defense Authorization Act for Fiscal Year 1991, the Congress amended both the Export Administration Act and the Arms Export Control Act to include restrictions on the export of Regime items. Under the amended Export Administration Act, the Secretary of Commerce, in consultation with the Secretaries of State and Defense and other officials, is required to establish and maintain as part of the Commerce Control List, a list of all dual-use goods and technologies that appear on the Regime Annex. Under the amended Arms Export Control Act, the Secretary of State, in consultation with the Secretary of Defense and others, is to establish and maintain as part of the U.S.

Munitions List, a list of Regime items that are not controlled under the Export Administration Act. Thus, under these statutes, individual Regime items are to be listed on either the Commerce Control List or the U.S. Munitions List—but not both lists. The Commerce Control List identifies a variety of controlled dual-use items, some of which are designated as being controlled for missile technology reasons, and includes Regime items. In contrast, the U.S. Munitions List contains a separate section that identifies Regime items subject to the State Department’s jurisdiction.

Export Control Jurisdiction Unclear for Certain Missile Technology Control Regime Items

Forty-seven of 196 Regime items appear subject to the export control jurisdictions of both the Commerce Department and the State Department. For these 47 items, either (1) the description of the item is the same on both the Commerce Control List and the U.S. Munitions List or (2) one Department claims jurisdiction over an item even though the item does not explicitly appear on its export control list but does appear on the other Department’s list. Appendix I contains descriptions of the 47 Regime items and identifies where they are covered on the Commerce and State control lists.

Table 1 provides examples of Regime items that appear on both export control lists with either identical descriptions or overlapping performance parameters.

Neither the Commerce Control List nor the U.S. Munitions List provides criteria to differentiate when these items are subject to the Commerce Department’s jurisdiction and when they are subject to the State Department’s jurisdiction. The Commerce Control List sometimes provides a cross-reference to the U.S. Munitions List when the State Department controls certain items meeting particular parameters.However, Commerce Department officials said that the Commerce Control List does not always include such references because the regulations would become too voluminous. The State Department’s control list generally does not indicate that an item may be subject to the Commerce Department’s control since the U.S. Munitions List is supposed to identify only those items subject to the State Department’s jurisdiction.

In other cases, the State Department claims jurisdiction over software and technologies related to missile production equipment and facilities, although these items do not explicitly appear on the U.S. Munitions List. These items, however, appear on the Commerce Control List.

Disagreement Over Definitions and Lack of Effective Consultation Have Contributed to Unclear Jurisdiction for Regime Items

Two factors have contributed to unclear jurisdiction for Regime items. First, officials at the Departments of Commerce and State have expressed different understandings of how to define which Regime items are Commerce Department-controlled and which are State Department- controlled. Second, consultations between the Departments of Commerce and State on Regime-related changes to their regulations have not ensured that items are clearly subject to the jurisdiction of one Department or the other. The State Department office responsible for maintaining the U.S. Munitions List has not formally participated in reviews of proposed changes to the Commerce Control List. Furthermore, the State Department has not updated the MTCR section of the U.S. Munitions List since the mid-1990s, precluding the opportunity to consult with the Commerce Department. “Is specifically designed, developed, configured, adapted, or modified for a military (i) Does not have predominant civil applications, and (ii) Does not have performance equivalent (defined by form, fit and function) to those of an article or service used for civil applications; ….”

Conversely, according to Commerce Department officials, if the item does not meet these criteria—even if it appears in the MTCR section of the U.S. Munitions List—it should be subject to the Commerce Department’s export controls. However, a senior State Department official disagreed with the Commerce Department officials’ interpretation of the State Department’s regulations. The official explained that the criteria cited by Commerce Department officials is used by the State Department, in consultation with the Defense Department, to determine which items will appear on the U.S. Munitions List and should not be used by exporters and others to determine whether an item is subject to the State Department’s export controls. Instead, exporters are to consult the U.S. Munitions List to determine which Regime items are under the State Department’s jurisdiction.

Consultations between the Departments of Commerce and State have been limited. According to the Commerce Department, it coordinates its regulations and proposed changes for the control of Regime items with the Departments of State, Defense, and Energy and, therefore, these Departments should be aware of which Regime items appear on the Commerce Control List. However, officials from the State Department’s Office of Defense Trade Controls, which maintains the U.S. Munitions List, said they are not formally consulted to ensure that Regime items do not appear on both export control lists. Within the State Department, the Bureau of Nonproliferation formally reviews and comments on the Commerce Department’s regulations for the control of Regime items. A senior Bureau official said that the review is to ensure that Regime items are controlled, without concern for which Department has jurisdiction.

Further, the State Department has not consulted with the Commerce Department in recent years regarding the Regime items covered by its export control list. According to a senior official with the Office of Defense Trade Controls, the Commerce Department was provided an opportunity to review the section of the U.S. Munitions List that identifies the Regime items subject to the State Department’s controls before the section was added to the International Traffic in Arms Regulations in 1994. However, this section of the State Department’s regulations has not been updated or revised since then to incorporate the periodic changes made to the Regime Annex. State Department officials maintain that the U.S. Munitions List does not have to be regularly revised to ensure that new items added to the Regime Annex are controlled, as those items are already controlled under the U.S. Munitions List’s broad categories. However, as a result of this lack of revision, the Commerce Department has not been provided another opportunity to review and comment on the Regime items covered by the U.S. Munitions List to ensure that items do not appear on both export control lists.

Unclear Jurisdiction for Regime Items May Have Consequences for U.S. National Interests and Exporters

The appearance of an item on both the Commerce Control List and the U.S. Munitions List and disagreements between the Departments over which one has jurisdiction may result in the same Regime item being subject to different restrictions and reviews, which may affect U.S. national interests and companies’ ability to export Regime items. While the Commerce Department’s export control system seeks to balance U.S. national security and foreign policy interests with economic interests, the State Department’s export control system was designed to primarily further national security and foreign policy interests. The differences in the underlying premises of the two Department’s export control systems are reflected in their restrictions on where Regime items can be exported and processes to review export licensing applications.

A key difference between the Departments’ export control systems is that some sanctions and embargoes only apply to items on the U.S. Munitions List and not to those on the Commerce Control List. For example, under U.S. law, licenses cannot be issued for the export of most missile technology and other items on the U.S. Munitions List to China. As a result, the State Department generally denies license applications involving the export of items on the U.S. Munitions List to China. This same restriction does not apply to items on the Commerce Control List. Missile technology items on the Commerce Control List may be licensed for export to China provided that certain legal requirements are met.Additionally, the State Department generally denies license applications involving exports of U.S. Munitions List items to Indonesia and Yugoslavia. The Commerce Department does not have a comparable policy for exports of Regime items to these countries. Because of these policy differences, the State Department could deny a license to an exporter seeking to export a Regime item to one of these countries, whereas the Commerce Department could approve a license to export the same item to these countries.

Other sanctions apply to both export control lists, but the Departments have enforced these sanctions differently. For example, under the MTCR sanction provisions of the Export Administration Act and the Arms Export Control Act, the President generally is to impose sanctions on U.S. and foreign parties who improperly transferred Regime items. For the improper transfer of Regime-controlled components, equipment, material, and technology, the Departments of Commerce and State are to deny export licenses to the involved parties for all Regime items subject to their respective controls for a 2-year period. In applying MTCR sanctions, the Commerce Department has allowed Regime items to be exported to sanctioned parties if these items were incorporated into larger items not subject to these sanctions. The State Department, however, has prohibited the export to sanctioned parties of non-Regime items on the U.S. Munitions List if they contain Regime items. As a result, exporters have been subject to different levels of scrutiny and restrictions at the Departments of Commerce and State.

Finally, the Commerce Department’s regulations do not require licenses for the export of Regime items on the Commerce Control List to Canada, while the Department of State’s regulations require licenses for the export of Regime items on the U.S. Munitions List to all countries. The exporter consulting the Commerce Control List could export an item to Canada without a license, while the exporter consulting the U.S. Munitions List would have to go through the Department of State’s license application process. The U.S. government may or may not have an opportunity to review and approve a Regime item exported to Canada, depending on whether the exporter consults the Commerce Control List or the U.S. Munitions List.

Because of differences in the export control systems of the Departments of Commerce and State, it is critical that exporters properly determine whether their items are controlled on the Commerce Control List or the U.S. Munitions List. However, some of the companies we spoke with did not understand U.S. export controls as applied to missile technology items. For example, an official from one company stated the company’s product is not exported for use in missiles and, therefore, did not understand why this product is controlled for missile technology reasons, even though it is on the Regime Annex. At another company, an official said that the State Department controls all Regime items and did not realize that the Commerce Department controls dual-use Regime items. Export licensing officials with another company said that companies acquired by their company had incorrectly determined that certain Regime items were Commerce Department-controlled when the items were State Department-controlled. An export licensing official from another company stated that when there is uncertainty as to which Department has jurisdiction over a particular Regime item, the company submits the license application to the Commerce Department with the expectation that the Commerce Department would send the license application to the State Department if the item were State Department-controlled. Officials from other companies said they relied on past experience, familiarity with a particular Department, and their own interpretations of the regulations when deciding where to submit an export license application.

Some of the companies expressed uncertainty of the meaning of certain terms in the regulations, which sometimes made it difficult to determine whether to submit their license applications to the Commerce Department or the State Department. For example, officials from several companies indicated that they did not understand what the regulations mean when referring to items as specifically designed or modified for a military application. These officials noted that the Departments of Commerce and State do not provide either a regulatory definition or sufficient guidance for what constitutes being specifically designed or modified. As a result, an official with one company said there is room for interpretation on the part of exporters. Officials from these companies stated that if they make any modifications to an item for use by the military, they submit the license application to the State Department to ensure that they do not violate the State Department’s regulations and governing statute.

Conclusions

The U.S. government has committed internationally to controlling Regime items because of its concerns about the threat missile proliferation poses to U.S. interests. The lack of clarity over which Department has jurisdiction over some Regime items may lead an exporter to seek a Commerce Department license for a militarily sensitive item controlled on the U.S. Munitions List or a State Department license for a dual-use item controlled on the Commerce Control List. The Commerce Department and State Department would review these license applications according to different criteria and restrictions and possibly reach different determinations on whether the item may be exported. Because there is unclear jurisdiction for critical Regime items, exporters are left to decide which Department should review their exports and, by default, the policy interests that are to be considered and acted upon.

Recommendations for Executive Action

To ensure that proposed exports of Missile Technology Control Regime items are subject to the appropriate review process, we recommend that the Secretaries of Commerce and State direct the offices responsible for the Commerce Control List and the U.S. Munitions List, in consultation with others as appropriate, to jointly review the Regime Annex, determine the appropriate jurisdiction for items on the Annex, and revise their respective export control lists accordingly; the Secretary of Commerce ensure that, when a Regime item generally controlled by the Commerce Department becomes subject to the State Department’s control if it meets certain parameters, the Commerce Control List specify those parameters and provide a cross-reference to the U.S. Munitions List; and the Secretary of State update the section of the U.S. Munitions List that identifies the Regime items subject to the State Department’s jurisdiction to ensure that it is consistent with the current version of the Regime Annex and provide a cross-reference to the Commerce Control List for those Regime items that would be subject to the Commerce Department’s control when certain parameters are met.

The annual review of the U.S. Munitions List, which is being conducted as part of the Defense Trade Security Initiative, may provide a vehicle to implement these recommendations.

Agency Comments and Our Evaluation

In written comments on a draft of this report, the Commerce Department concurred with our recommendation to review the Commerce Control List and the U.S. Munitions List to provide additional clarity to exporters. However, the Commerce Department commented that jurisdiction for Regime items is generally clear and the current export control system is not a risk to U.S. nonproliferation interests. The Commerce Department stated that it refers its export license applications for Regime items to the State Department and other agencies for their review. According to the Commerce Department, the State Department has an opportunity to indicate that an item cannot be licensed under the Commerce Department because it is State Department-controlled. However, making a jurisdiction determination during the license review process delays the exporter from obtaining an approved license from the appropriate Department. By clarifying the regulations, the Departments would minimize such occurrences that can impact the workloads of both the exporters and the U.S. government. The Commerce Department’s comments are reprinted in appendix II, along with our evaluation of them.

In written comments on a draft of this report, the State Department concurred with our recommendation to update the section of the U.S. Munitions List that identifies the Regime items subject to the State Department’s jurisdiction. The State Department said that, as part of this update, it will work with the Commerce Department in an effort to eliminate unclear jurisdiction for Regime items. According to the State Department, the process of updating this section has already begun and should be completed before the end of 2001. The State Department also provided technical comments to clarify which Regime items are subject to its jurisdiction and we revised the report to reflect those comments. The State Department’s comments are reprinted in appendix III, along with our evaluation of them.

Scope and Methodology

To determine the division of jurisdiction over Regime items between the Departments of Commerce and State, we compared the Regime Equipment, Software, and Technology Annex of October 2000 with the January 2001 Commerce Control List and the April 2000 U.S. Munitions List (and subsequent updates made to each list). We then confirmed with officials from the Department of State’s Office of Defense Trade Controls and the Department of Commerce’s Bureau of Export Administration the Regime items that they claim as subject to their respective export controls.

To identify the factors that contribute to unclear jurisdiction for Regime items, we interviewed officials with the Department of Defense’s Defense Threat Reduction Agency, the Department of State’s Bureau of Nonproliferation and Office of Defense Trade Controls, and the Department of Commerce’s Bureau of Export Administration. We also reviewed Commerce Department and State Department policies and practices for revising the export control lists.

To identify the potential effects of unclear jurisdiction, we conducted structured interviews with 24 companies that export Regime items to discuss how they determine which Department controls their exports of Regime items and how they are affected by differences in the export control systems. These companies were selected on the basis of the number of license applications for the export of Regime items they had submitted to either the Commerce Department or the State Department from fiscal year 1997 through fiscal year 2000. We also interviewed officials with the Department of Defense’s Defense Threat Reduction Agency, the Department of State’s Bureau of Nonproliferation and Office of Defense Trade Controls, and the Department of Commerce’s Bureau of Export Administration. Additionally, we reviewed our prior reports and reports from the Inspectors General of the Departments of Defense and Commerce.

We conducted our review from January through July 2001 in accordance with generally accepted government auditing standards.

As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution of this report until 30 days after its issuance. At that time, we will send copies to the Chairmen and Ranking Minority Members of the Senate Committee on Banking, Housing, and Urban Affairs; Senate Committee on Foreign Relations; House Committee on International Relations; House Committee on Armed Services; the Secretaries of Commerce, Defense, and State; the Director, Office of Management and Budget; and the Assistant to the President for National Security Affairs. We will also make the report available to others upon request.

If you or your staff have questions concerning this report, please contact me at (202) 512-4841. Others making key contributions to this report were Thomas J. Denomme, Anne-Marie Lasowski, Johana R. Ayers, Richard K. Geiger, and John Van Schaik.

Appendix I: Missile Technology Control Regime Items Subject to Unclear Jurisdiction

Forty-seven of the 196 items listed in the Missile Technology Control Regime (MTCR) Equipment, Software, and Technology Annex appear subject to the export control jurisdictions of both the Departments of Commerce and State. These 47 Regime items are described in table 2, along with an identification of where they are controlled on the Commerce Control List and the State Department’s U.S. Munitions List.

In some cases, Regime items are described on both export control lists with either identical or overlapping performance parameters. For these items, we have identified the category and Export Control Classification Number where they appear on the Commerce Control List and the category where they appear on the U.S. Munitions List. The remaining items, which are software and technologies related to Regime production facilities and equipment, have been claimed by Department of State officials as subject to the State Department’s jurisdiction, although the items do not explicitly appear on the U.S. Munitions List but do appear on the Commerce Control List. For these items, we have indicated on the table where State Department officials claim these items are controlled on the U.S. Munitions List and where they appear on the Commerce Control List.

Appendix II: Comments From the Department of Commerce

GAO Comments

1. Text revised for clarification. 2. We believe the text reflects what Commerce Department officials told us during our review and is not substantively different than the Commerce Department’s proposed change. We, therefore, do not believe a revision is needed. 3. We did not revise the report to include a discussion of the license review process. We believe that jurisdictional determinations should be made before a company submits an export license application for review. Clarification of the regulations would help ensure that a company submits its license application for a Regime item to the appropriate Department.

4. Text revised. 5. As discussed in the report, the State Department did not agree that exporters should use the criteria contained in section 120.3 of the State Department’s regulations to determine whether an item is subject to the State Department’s export controls. In addition, the Commerce Department refers to section 120.3 as containing the definition of a defense article. However, the definition of a defense article appears in section 120.6 of the State Department’s regulations. According to the definition in section 120.6, a defense article is any item or technical data designated on the U.S. Munitions List. 6. We believe the text reflects what Commerce Department officials told us during our review and is not substantively different than the Commerce Department’s proposed change. We, therefore, do not believe a revision is needed. 7. The Commerce Department’s example highlights the difference between how the Departments of Commerce and State enforce sanctions. We do not believe additional clarification is needed. 8. As discussed in the report, some of the exporters we spoke with did not understand the export control system or certain terms in the regulations, thereby making it sometimes difficult to determine where to apply for a license to export Regime items. We point out in one example that a company submits license applications to the Commerce Department when uncertain as to which Department has jurisdiction, but do not discuss how Commerce licensing officers respond in such a situation. 9. Text revised for clarification.

Appendix III: Comments From the Department of State

GAO Comment

1. We believe our draft report reflected information provided to us by State Department officials during the course of our review. However, we have revised the report to reflect the State Department’s position as indicated in its comments.