| Cryptome DVDs. Donate $25 for two DVDs of the Cryptome collection of 47,000 files from June 1996 to January 2009 (~6.9 GB). Click Paypal or mail check/MO made out to John Young, 251 West 89th Street, New York, NY 10024. The collection includes all files of cryptome.org, cryptome.info, jya.com, cartome.org, eyeball-series.org and iraq-kill-maim.org, and 23,100 (updated) pages of counter-intelligence dossiers declassified by the US Army Information and Security Command, dating from 1945 to 1985.The DVDs will be sent anywhere worldwide without extra cost.

8 December 1998
Source:

USIS Washington File
_________________________________

07 December 1998

### COMMERCE DEPT.'S REINSCH ON EXPORT CONTROLS

    (Cites "uphill battle" with Congress tied to China)  (4100)

    Washington -- Under Secretary of Commerce William Reinsch says he will
    resist any attempts in the next Congress to remove export control
    licensing authority from the U.S. Department of Commerce.

    In December 7 remarks to a Practicing Law Institute seminar, Reinsch
    said congressional opponents of Clinton administration China policy
    should debate that policy, not tamper with the licensing process.

    "Using the licensing process as a proxy for debate leads to a
    lose-lose outcome for all of us," Reinsch said. "It will not change
    our policy, but it will destroy an efficient, effective system."

    Under investigation by several congressional committees over satellite
    and computer exports approved for China, Reinsch's bureau has spent an
    enormous amount of time collecting and forwarding hundreds of
    thousands of documents, some nearly a decade old, slowing down its
    regular work of processing license applications.

    In the past two years, Congress has reversed two key administration
    decisions by returning export-control licensing authority for
    satellites from Commerce to the State Department and by reimposing
    stricter controls on computer exports to 50 countries.

    Reinsch spoke in defense of President Clinton's export-control policy,
    which emphasizes that keeping U.S. high-tech industries competitive is
    essential for national security as well as U.S. economic performance.

    That policy has meant changing regulations as technology and foreign
    relations evolve, he said.

    "We have worked hard to adapt our policies and procedures to these new
    realities, but we are finding, frankly, that it is an uphill battle as
    we contend with those, primarily in the Congress, who do not
    understand these changes and respond to them by trying to return to
    the simpler era of the cold war and a single adversary," Reinsch said.
    "Only this time it is China."

    Following is the text of Reinsch's remarks as prepared for delivery:

    [Compare with Reinsch address to PLI of December 8, 1997.]

    (begin text)

    KEYNOTE ADDRESS
    UNDER SECRETARY WILLIAM A. REINSCH
    BUREAU OF EXPORT ADMINISTRATION
    U.S. DEPARTMENT OF COMMERCE

    PRACTISING LAW INSTITUTE
    COPING WITH U.S. EXPORT CONTROLS
    DECEMBER 7, 1998

    Introduction

    Good morning. I am pleased to be back with PLI once again to discuss
    the direction of the administration's export control program. I
    believe this is the fourth time I've been privileged to be with you.

    Accelerating Global Change

    This administration's stewardship of export controls has occurred
    during a period of unprecedented political and economic
    transformation. We have worked hard to adapt our policies and
    procedures to these new realities, but we are finding, frankly, that
    it is an uphill battle, as we contend with those, primarily in the
    Congress, who do not understand these changes and respond to them by
    trying to return to the simpler era of the cold war and a single
    adversary. Only this time it is China. I will return to that
    challenge, but let me begin by commenting on some of the changes we
    will have to deal with as we head into a new century.

    The most important was laid out by President Clinton in his speech
    commemorating the 50th anniversary of the GATT when he said "economic
    globalization is not a policy option; it is a fact." More efficient
    modes of transportation and communication, the internationalization of
    capital flows, the development of the information-based economy, all
    work together to transform the traditional, national economic system
    into one which is truly global -- where capital, ideas, goods,
    technology -- and increasingly labor -- all flow across borders.

    This means that companies have new choices. They can build,
    manufacture, produce and sell in multiple locations all over the
    world. They can locate their R&D facilities wherever they wish and
    often separate from their production facilities. They do so because
    they can, because they have to -- as a condition of doing business
    somewhere -- or because it is cheaper or more efficient. It is also
    true that the fact that we have fewer adversaries today than during
    the Cold War means that companies have new markets with expanded
    international demand for their products -- even though we have placed
    half the world's population under sanctions of one sort or another.

    Second, countries have more choices. With more competition and more
    sources of products and capital, they can keep companies out or pull
    them in with inducements or threats, playing one supplicant off
    against the other.

    Third, if ever the U.S. had a monopoly on technology, that is no
    longer so. Technology has joined land, labor and capital in the
    Ricardian equation of comparative advantage, and it is the most
    fungible of these factors of production, residing as it does in books,
    blueprints, diskettes, our workers' brains in the form of know-how.
    The diffusion of technology as well as the rapidly growing cost of
    state-of-the-art production facilities in a growing number of high
    tech sectors means that joint ventures are the economic and political
    reality of the future. Going it alone is too expensive and too
    isolating in a global marketplace.

    Fourth, the line between military and civilian goods is increasingly
    fuzzy because of the military's growing reliance on commercial
    off-the-shelf technologies for reasons of cost, quality, and speed of
    procurement. As our military's use of civilian high technology to meet
    a wide range of needs expands, it demands that our industries be on
    the cutting edge. That, of course, takes money, which means our
    companies have to be profitable.

    And the reality, of course is that while the Defense Department relies
    on a strongly civilian high tech sector to continue to develop and
    manufacture new and better defense products, it does not buy enough
    itself to keep them healthy. Instead, in a globalized economy, exports
    have become the key to growth and good health and, in turn, to a
    strong defense. For example, in the computer and satellite industries,
    between 50 and 60 percent of all revenues come from sales outside the
    U.S. Thus the equation is simple: exports equals healthy companies
    equals strong defense equals improved national security.

    While pursuing the benefits of a global economy by having top-notch
    high-tech industries is very much in the interest of economic growth
    and jobs, it is also entirely in our national security interest as
    well. And it is our national security priorities that form the basis
    for our export control system.

    That means we must continue to work multilaterally in tying to prevent
    bad actors' acquisition of high-tech tools. But we fool ourselves if
    we think export controls alone can stop the spread of high technology,
    and we underestimate the resistance we will encounter from other
    nations who accuse us of unilaterally trying to hold back their
    economic growth and entry into the global information age. Working
    with the international community to develop consistent export control
    policies continues to be the only sure way to accomplish our
    nonproliferation goals.

    Following the dissolution of the Soviet Union, the United States and
    its western partners no longer target the Warsaw Pact states and
    instead seek to expand rather than restrict high-technology trade with
    the East. Our interest is to bring these countries into the
    international economic and political systems. That means helping them
    end their economic isolation and integrating them into western
    economic structures. That means trade -- not just because it is good
    for us economically, but because it is good for our collective
    national security as well.

    To that end BXA works closely with foreign nations to encourage strong
    export control programs. Over the past several years we have helped
    former Soviet Bloc states draft laws, obtain and install hardware and
    software to maintain a control program, train licensing officers,
    enforcement agents, and border control officials, and prepare to
    adhere to international regimes. The result will be better global
    controls which will benefit all of us.

    Accomplishments

    When I first met with you several years ago, I laid out our goals for
    reform, streamlining and liberalization to deal with these changes.

    The good news is that many of these goals have been met. The bad news
    is that there are attempts to roll back those hard-fought changes and
    return us to a darker era that will not only hurt us economically but
    will ultimately harm our security as well. Even so, we are not
    standing still, and I would like to take a few moments to comment on
    our successes, our plans, and what we hope will be unsuccessful
    efforts to roll them back.

    Process Reform

    As you know, we've made a great deal of progress reforming our
    process; yet much of that is imperiled by congressional investigations
    from two perspectives. First, the sheer volume of demands for
    documents and information has slowed the licensing pace to a crawl as
    licensing officers in both Commerce and Defense spend their time
    reviewing old files and rounding up documents, some of them as much as
    eight years old. While we have for the time being put off the threat
    of actually having to close down, we continue to lag behind the
    standards of the Executive Order, and with the six inspectors general
    investigation gearing up, there is no relief in sight.

    Second, I anticipate that these investigations will lead to efforts to
    move the licensing process from Commerce to some other place.
    Obviously, we will resist that. Some 95 percent of what the licensing
    agencies do collectively is non-controversial and handled properly by
    consensus at the working level in a system that is designed to be
    transparent, responsive to the applicant, and efficient. Changing a
    system that works well -- when we are not buried in congressional
    requests -- does a disservice to exporters, to business generally, to
    our goal of competent government, and, most important, to our national
    security.

    More important, such proposals divert attention from the real issue,
    which is not about the licensing process but about licensing policy --
    specifically our policy toward China. There are members of Congress
    who oppose the President's policy of constructive engagement with
    China and instead would treat them as the Soviet Union of the next
    century. I believe they are wrong, but it is an issue worthy of
    debate. Using the licensing process as a proxy for such a debate leads
    to a lose-lose outcome for us all. It will not change our policy, but
    it will destroy an efficient, effective system.

    Let me say on that latter point of effectiveness, you will no doubt
    hear accusations that the system is less effective than in previous
    administrations, and I will be prepared to refute those one by one.
    Every administration has had its difficulties, dealing with the
    realities and limitations of export controls, and this one is no
    exception. But having been involved in this field for more than 20
    years, I can tell you with some authority that this Administration's
    record is better than most and our country is stronger for it, in
    terms of both our security and our economy.

    Now let me turn to some specific developments of interest to you.

    Chemical Weapons Convention

    Last October, the Congress finally passed Chemical Weapons Convention
    implementing legislation that compels industry compliance with the
    data declaration and inspection requirements of the treaty.

    The Department of Commerce will be responsible for industry compliance
    with the CWC and will promulgate two regulations in the near future:
    an interim/final rule amending the EAR to address new export controls
    and end-use requirements; and proposed regulations addressing data
    declaration and inspection requirements. After finalizing the latter,
    BXA will collect and forward industry declarations and escort
    inspection teams at U.S. commercial sites. BXA is working with other
    agencies, such as the FBI and the Defense Threat Reduction Agency, to
    meet its CWC responsibilities and will ensure that staff is properly
    trained and certified to maximize the protection of confidential
    business information and minimize the costs and burdens of
    implementation to industry.

    We are also deeply engaged in the ongoing negotiations to strengthen
    the Biological Weapons Convention by providing a similar inspection
    system.

    Wassenaar Arrangement

    The Wassenaar Arrangement on dual-use technologies and conventional
    weapons entered into force two years ago. Its lack of strong central
    authority and its lack of explicit target countries, in contrast with
    COCOM, is a reflection of the times -- the absence of a single large
    threat and lack of agreement over the nature and seriousness of the
    smaller ones. But that weakness has complicated its development and
    made consensus among the expanded membership more difficult to
    achieve. Nevertheless, its inclusion of conventional weaponry is a
    major step forward. We have seen a marked improvement in the transfer
    data reported by member countries, and I am confident that discipline
    will continue to grow.

    One of the things the CWC battle reminded us is that arms limitation
    agreements rarely arrive fully grown and complete. They are
    incremental. Establishing comprehensive adherence and compliance is an
    ongoing process that takes years of patience and confidence building.
    The result is worth waiting for, but the time spent getting there is
    also not wasted. Even works in progress produce successes along the
    way.

    Domestic Changes

    In past years you have listened to me tick off our domestic
    accomplishments: licensing process reform, rewritten regulations,
    control liberalizations on computers, software, semiconductors,
    semiconductor manufacturing equipment, and oscilloscopes to mention a
    few. 1997 and 1998 brought about some steps backward in our past
    accomplishments, specifically in the areas of computers and
    satellites. The implementation of the national defense authorization
    act to more closely monitor certain computer exports to the People's
    Republic of China and the former Soviet Union has increased our
    licensing volume and enormously expanded our post-shipment visit
    burden in a way that makes no enforcement sense. This increase will
    not be offset by the handful of licenses we will lose with the
    retransfer of satellites back to the State Department next year.

    We are now processing some 10,000 licenses per year, and I do not
    expect it to decline significantly in the future because I see few
    high-volume areas ready for major liberalization. Our challenge will
    not be to shrink it but to keep it from growing due to our failure to
    keep pace with technology advances.

    Encryption

    Encryption continues to be a hotly debated issue. As I stated last
    year, the U.S. continues to support a balanced approach to encryption
    policy which considers privacy and commercial interests as well as
    protecting law enforcement and national security interests.
    Furthermore, we also remain committed to promoting the growth of
    global electronic commerce through secure financial and business
    communications.

    Our position has always been to seek industry-led, market-driven
    solutions to achieve a balanced approach. What has changed is the
    direction where technology and the market place are taking us. Key
    recovery technology remains a very important part of our policy;
    however, over the past two years, we have recognized that key recovery
    is not a solution for all problems.

    That recognition, brought about in part as a result of our ongoing
    dialogue with industry, has helped us also focus on recoverable
    technologies that can enable law enforcement to continue its
    authorized activities.

    As a result, on September 16, Vice President Gore unveiled a policy
    update, which will not end the debate, but which does include steps to
    further streamline exports of key recovery products and other
    recoverable products which allow law enforcement, under proper legal
    authority, recovery of plain text.

    The update also provides for 1) the export of 56 bit DES worldwide to
    any end user under a license exception; 2) exports of strong
    encryption to U.S. companies and their subsidiaries under a license
    exception; 3) exports of strong encryption to the insurance and
    medical sectors in 45 countries under a license exception; and 4)
    exports of strong encryption to secure on-line transactions between
    on-line merchants and their customers in 45 countries under a license
    exception. This is consistent with our earlier announcement relating
    to financial institutions.

    This is an evolutionary process and we intend to continue our
    dialogue. We must continue to adapt to changes, and we will review our
    policies again within the year to determine whether further change is
    necessary. We intend to publish regulations implementing the Vice
    President's announcement this month.

    With respect to developing a common international approach to
    encryption policy, Ambassador David Aaron, our special envoy on
    cryptography, is working with other countries to ensure that our
    policies are compatible. He has found that most major producing
    countries have public safety and national security concerns similar to
    ours and are interested in developing a harmonized international
    approach regarding compatible infrastructures for electronic commerce
    and for a key management infrastructure. At last week's Wassenaar
    Arrangement plenary session, the participating states approved a
    number of changes to modernize and improve multilateral encryption
    export controls. These changes removed controls on products below 56
    bits and on certain consumer entertainment systems, such as DVD
    products, and on cordless phone systems designed for home or office
    use.

    Most important, participating states agreed to extend controls to
    mass-market encryption exports above 64 bits, thus closing a
    significant loophole. This will enable governments to review the
    dissemination of the strongest encryption products that otherwise
    might fall into the hands of rogue end users.

    For those of you deeply interested in the details of our encryption
    policy, we have a specific session devoted to it tomorrow.

    Enforcement

    On the enforcement side our most significant accomplishment is the
    framework arrangement we reached in June of this year with China on
    end-use visit practices. The arrangement gives the United States the
    ability to visit and inspect the locations of end-users of U.S.
    dual-use exports. This is an important first step for increasing
    confidence in the proper use of controlled items and one that we have
    been seeking from China for 15 years. Until we reached this
    arrangement, the U.S. had been able to conduct post-shipment checks in
    all of our major trading partners except China.

    Exporter of Record

    In August, the Census Bureau published a proposed amendment to its
    regulations relating to shippers export declarations. Census has been
    concerned that forwarding agents, who complete and file a large
    percentage of all SEDS, have not been getting complete and accurate
    data from their customers. They are particularly concerned about cases
    when the customer is the foreign buyer, as is frequently the case when
    the sale is on an "ex works" basis or on other trade terms that make
    the buyer responsible for arranging for the shipment and export
    authorization. For BXA, the SED is an export control document, and we
    want it to contain accurate entries regarding product classification
    and the applicable license exception or other export authorization.

    There was a deluge of public comment on the proposed rule, most of it
    critical. The central concern was that the proposed changes would
    impose new or uncertain responsibilities on sellers for the
    performance of forwarding agents hired by buyers.

    That controversy caught my attention. Census and BXA management
    conferred and agreed to an approach that should produce good results.
    We recognized that the SED rules in the Census and BXA regulations
    must be coordinated and give common terms consistent meaning. Census
    has agreed to put its changes on hold while BXA defines the changes
    needed for export control purposes. The resulting proposed rules will
    be published at the same time. I cannot now provide specifics as to
    content or timing, but I can tell you that we are giving serious
    attention to the public comments and to pinpointing the
    responsibilities of the various participants to supply data in a way
    that does not disrupt business practices and relationships.

    Critical Infrastructure

    You may recall that I mentioned critical infrastructure protection
    when I spoke with you last year. In response to recommendations issued
    by a presidential commission, the federal government has organized
    itself to assure the security of the increasingly vulnerable and
    interconnected infrastructures of the U.S., including
    telecommunications, banking and finance, energy, transportation, and
    essential government services. We understand that the private owners
    and operators of these infrastructures are on the front lines of this
    effort, and we are working in partnership with them both to deal with
    threats and to develop new protections to make such threats less
    credible. The Commerce Department has a large role in these efforts,
    both as the lead agency for the information and communications sector
    and as the home of the Critical Infrastructure Assurance Office, or
    CLAD, which serves as the staff to the coordinator at the National
    Security Council. The CIAO has coordinated the Administration's
    initial efforts for a public-private partnership to assess
    vulnerabilities to cyber and physical attacks, eliminate significant
    vulnerabilities, develop plans for alerting and rebuffing an attack in
    progress, and rapidly reconstituting minimum essential capabilities
    after an attack. The CIAO has also initiated consultations with the
    business community, state and local governments, Congress, and other
    like-minded nations to maximize the alliance for our security.

    I'm sure you will be hearing a great more about this in the future.

    The Future

    Despite -- or perhaps because of -- our progress in reorienting our
    export control system, we are under fire at the same time major
    challenges remain. As the pace of economic globalization quickens,
    technology becomes more diffuse, and maintaining effective controls in
    the face of widespread foreign availability becomes more difficult.

    We do not have a monopoly on sophisticated technology, and countries
    intent on developing weapons of mass destruction can usually find a
    number of suppliers to choose from. We would be wasting our time if we
    maintained long lists of items to control unilaterally that are
    available from other sources.

    As we seek to pare those lists down to what is truly critical, we now
    have to contend with those who want to bring back the good old days of
    the Cold War. The insidious problem of fighting those efforts is that
    even if we win, we have used all our time and energy playing defense
    and have not further advanced our policy,

    If we can climb out of this swamp of investigations, we could conclude
    the reform of our own procedures and concentrate on increasing
    multilateral discipline.

    Concluding our own reforms means focusing on true choke points and
    eliminating controls -- and sanctions -- that do not advance our
    security or policy objectives. Doing so will add to our credibility
    with our trading partners, most of whom take a much more limited
    approach. It also means making sure our controls take into account the
    pace of technology development, particularly in sectors like computers
    where a new overall is badly overdue.

    In addition, we must provide more information to exporters and our
    trading partners about problem end users. Most of our trading partners
    have followed our lead and adopted a catch-all clause like our
    enhanced proliferation control initiative. Making them work
    effectively means sharing more information -- about end users, end
    uses, potential for diversion, and so on. We have made some progress
    on this issue, and we seek to expand the information we provide
    exporters.

    Finally, we must continue our efforts to reform sanctions policy in
    both the executive and legislative branches. Sanctions have a role to
    play. We are driven to them in cases like Cuba and Iran, often because
    of the Congress, but also by our determination to condemn and modify,
    if we can, behavior we find unacceptable. Increasingly, however, we
    tend to think of them as a first resort rather than a last resort.
    More than many other issues, however, the sanctions devil is in the
    details. Badly implemented, these measures can cause enormous
    uncertainty and difficulty for businesses -- even for those who do not
    trade with these countries and have no intention of doing so. Careful
    implementation will minimize the extraterritorial impact that so
    irritates our allies.

    We made progress this year in moving toward a healthier sanctions
    policy, but we fell short of final congressional action. We need to
    renew that effort in 1999. Our success will not only be a sounder
    policy, but it will facilitate our efforts to obtain multilateral
    consensus in other areas as well.

    Conclusion

    In closing, let me thank you for your understanding during these last
    few years. The changes I've described have not come easily, and we
    have tried very hard to consult with affected industries as we have
    gone forward. Your cooperation and support in that is much appreciated
    and continues to be needed -- particularly as we face a difficult year
    ahead.

    (end text)