Watch the latest videos on YouTube.com

| Cryptome DVDs are offered by Cryptome. Donate $25 for two DVDs of the Cryptome 12-and-a-half-years 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.

Web | cryptome.org | cryptome.info | jya.com | eyeball-series.org | cryptome.cn

21 October 2003
Source: http://usinfo.state.gov/usinfo/Archive/2003/Oct/16-554932.html

October 20, 2003

### China Still Needs to Work on Export Controls, U.S. Official Says

Commerce Dept.'s Juster also describes India, transshipment hub initiatives

China's performance in preventing proliferation of weapons and enforcing export controls on weapons parts "has been less than fully satisfactory," a U.S. Department of Commerce official says.

In October 20 remarks to a Commerce Department conference and to reporters afterwards, Under Secretary Kenneth Juster said that a number of Chinese entities were still exporting sensitive items to countries where the manufacture of weapons of mass destruction is a concern.

He said also the Chinese government most often still restricts the Commerce Department's efforts to verify that exports of advanced technology from the United States have not been diverted to unauthorized end-users or end-uses -- a routine procedure the department conducts in more than 85 other countries.

"Although we have made some progress with the Chinese in this area, much more needs to be done in order to have an effective system in place," Juster said. "Without further progress, our ability to license exports to certain Chinese companies will decrease."

Juster also described two major U.S. initiatives of the past year, one promoting high-technology commerce with India and another aiming to tighten security at major transshipment hubs around the world.

He lamented the continued absence of statutory authority for the export-control work of his agency, the Bureau of Industry and Security in Commerce. Divided between security and commercial interests, Congress has been attempting and failing for more than 10 years to reform the Cold War-era Export Administration Act (EAA). Congress has alternately passed short-term extensions of the 1979 act and allowed it to lapse; it has lapsed for two years now with the export-control system operating under emergency law and no prospect in sight for EAA reauthorization.

In the meantime, Juster said, the bureau has been advancing administrative initiatives to keep pace with change in technology and global politics. Soon, he said, the bureau will publish a proposed regulation for relaxing controls on computer and microprocessor technology. He said the bureau is looking for ways to improve the process for renewing licenses for "deemed exports" -- the term for foreigners temporarily hired in U.S. technology research and development.

And he said the bureau is considering changes to the Cold War-era system of classifying countries for export-control licensing. For example, he told reporters, Romania remains in a fairly restrictive category even though it has been invited to become a NATO member and is an ally in the Iraq war.

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

Keynote Address of Kenneth I. Juster

Under Secretary of Commerce for Industry and Security

at the
Update 2003 Export Controls and Policy Conference

October 20, 2003
Washington, D.C.

The last two and one-half years have been a time of great transformation in our political, economic, and security landscape -- a time when we have been asked to rise to new challenges as well as new opportunities. I would like, therefore, to share my thoughts on how the Bureau of Industry and Security [BIS] has tried to respond to this environment -- what have been our priorities and accomplishments since we last met one year ago.

Streamlining and Strengthening Export Controls

Let me start where I have begun in previous years -- with the need for a new Export Administration Act. As you know, the statutory authority for our dual-use export control system has not been comprehensively revised or overhauled for a long time. Moreover, the Export Administration Act of 1979, as amended, expired in August 2001. Since then, we have been acting under authority of the President's invocation of the International Emergency Economic Powers Act.

This Bureau and the Administration have supported new legislation to create a streamlined and strengthened export control system that promotes both U.S. national security and U.S. economic interests. We strongly supported the bill that passed the Senate last session -- Senate bill 149. A related bill passed through the relevant committees in the House, but the session ended before the Senate and House bills could be reconciled and a new law enacted.

The Administration is committed to working with the relevant committees of the Senate and House on a new bill. We hope that we will be able to do so. In the meantime, however, we have been moving forward on a number of fronts administratively to make our export control system more efficient and more effective. For example:

-- We issued for comment last month new administrative case penalty guidelines, in which we list the considerations, both mitigating and aggravating, that form the basis for our decisions in administrative settlements. Once finalized, these guidelines will provide additional transparency in our decision-making process and will be a useful reference point for exporters.

-- We revised our "Guidance on Reexports" to make it easier to understand and use. We also translated the guidance into several foreign languages, which we posted on our Web site. We believe that these changes will make U.S. export controls clearer for potential foreign importers, and that, in turn, should increase trade and compliance.

-- We have undertaken within the Bureau and with the interagency community a comprehensive examination of the area of deemed exports and technology controls. We are about to publish a notice in the Federal Register that will seek comments on our proposal to liberalize controls on computer and microprocessor technology and related software. We are also looking at ways to improve the process for renewing deemed export licenses. And we are actively seeking to address the issue of intra-company transfers of technology in a manner that will both facilitate appropriate transfers of such technology while ensuring that companies have in place the proper mechanisms for protecting that technology.

-- We are completing work on a proposed rule that will clarify the "knowledge" standard in the Export Administration Regulations [EAR], principally in the provisions that implement the Enhanced Proliferation Control Initiative -- known as "catch-all" controls. The proposed rule also will update and improve the "Red Flag" guidance in the EAR and describe steps that parties can take to identify and resolve any such red flags. BIS will circulate the rule for interagency review soon.

-- In addition, we are undertaking within the Bureau a review of the country group structure in our regulations, which affects licensing policy and license exceptions. The country groups have not been updated in many years, and we hope to provide shortly a proposal to the interagency community for bringing our categories in line with today's geopolitical and strategic environment.

-- From our enforcement standpoint, this has been a very active year. We successfully concluded a number of significant cases, with total criminal penalties of approximately $2.2 million and administrative fines of $4.4 million.

Several of our cases made new law.

-- For instance, the Sigma Aldrich case established the precedent of successor liability for violations of the Export Administration Regulations. In that case, a company acquired by Sigma Aldrich in 1997 made illegal exports of biological toxins to various end-users in Europe. Sigma Aldrich paid a penalty of $1.76 million for the liability arising from the illegal exports in that case, thus underscoring the importance of due diligence in this area.

-- Another important case, DSV Samson, established a precedent for reaching beyond exporters to hold other participants in an export transaction liable -- in this case, a freight forwarder. In the DSV Samson case, the freight forwarder paid substantial criminal and administrative fines for forwarding unlicensed shipments from American exporters to Indian end-users on the Entity list.

-- There were numerous other important cases brought by Export Enforcement during the past year, including those involving the illegal diversion of night vision devices that could pose a direct threat to U.S. national security, the illegal export of laboratory equipment to Pakistan, and the illegal export of pipe cutting machines through a third country to Iran.

-- Our Export Enforcement activities are expanding at home, where we will be opening up a new office in Houston, and overseas, where we will place new attaches in India, Russia, and Hong Kong, to go along with those already stationed in China and the United Arab Emirates.

International Initiatives

Another priority area for us -- in addition to streamlining and strengthening our own export-control system -- has been to work with other countries and the multilateral regimes on the development and enforcement of export controls.

Transshipment Country Export Control Initiative

While we have for years engaged in technical cooperation programs with other countries, at last year's Update Conference I announced the launching of the Commerce Department's Transshipment Country Export Control Initiative -- known as TECI. The purpose of TECI is to work with relevant government and private sector officials at key transshipment hubs to tighten security and enhance export control systems without hindering the rapid flow of legitimate trade. We have focused initially on those transshipment hubs that serve as major distribution points in the global economy and are also located near countries that pose proliferation or security concerns. These hubs could be used by terrorists or rogue nations to divert sensitive items to unauthorized end-users. To date, we have held bilateral discussions with eight TECI partners Hong Kong, Panama, Taiwan, Thailand, Malaysia, Singapore, Cyprus, and the United Arab Emirates -- and multilateral discussions with these eight and Malta, our ninth TECI partner.

These discussions have delivered useful results. This year, for example, Hong Kong entered into a new arrangement with us on information sharing that enhances our joint compliance and enforcement efforts. In addition, we have worked with members of the exporting community in developing and issuing a list of Best Practices for Exporters/Reexporters and Trade Facilitators Operating in Transshipment Hubs. We greatly appreciate the helpful input that many of you provided in the completion of this project.

U.S.-India High Technology Cooperation Group

As part of the trade and security agenda, we have also spearheaded a major U.S. Government initiative with the Government of India to promote bilateral high-technology commerce. In November of last year, we announced in conjunction with India's Ministry of External Affairs the formation of the U.S.-India High Technology Cooperation Group, designed to facilitate strategic trade and enhance controls to prevent the proliferation of sensitive goods and technologies. Three months later, in February of this year, we signed with the Government of India a Statement of Principles on U.S.-India High Technology Commerce. These principles included the need to address systemic issues inhibiting high-technology trade, such as tariff and non-tariff barriers in India. We also agreed to engage in outreach and trade promotion activities with regard to market opportunities, review U.S. export control policy toward India, and work with India to enhance its export control and enforcement programs.

We have taken action in each of these areas. In July, we held a major public-private forum on the climate for U.S.-India trade and investment, and on financing innovation, with a particular emphasis on the sectors of information technology, defense technology, life sciences, and nanotechnology. We followed this conference with government-to-government meetings the next day to discuss, among other issues, the policy recommendations for trade facilitation and export control reforms that came out of the public-private forum. We will be having another series of meetings next month in India, with a private sector conference in Bangalore on November 19, and government meetings in New Delhi on November 20. I urge those of you who have operations in India and are interested in participating in these activities to contact us. India, as the world's largest democracy and a rapidly growing economy, presents an enormous market opportunity for the high-tech sector, and we would like to work with you to help realize this potential.

China

Another huge potential market for U.S. companies is China. In my view, one of the quiet accomplishments of this Administration has been to keep relations with China on an even keel and in a positive, cooperative framework. The United States and China today are significant trading partners, peaceful competitors for regional influence, and nations with shared global interests. We seek to have constructive and cooperative relations with the Chinese, and to integrate China into a rules-based international community. In this manner, we and the Chinese can successfully address a wide range of issues important to our mutual well-being.

Since China first embraced market reform and significantly opened itself to foreign trade and investment, its trade with the United States has grown exponentially. China is now our fourth largest trading partner. Although we run our biggest trade deficit with China, and although the growth in U.S. exports to China has been much less pronounced than the tremendous growth in the U.S. imports from there, China is our seventh largest export market, with sophisticated manufactured products and machinery leading the list of U.S. exports.

The systemic reforms that China will undertake as a consequence of its WTO [World Trade Organization] accession should facilitate our business dealings with the Chinese. To date, however, China's implementation of WTO provisions has been mixed. Given the breadth and complexity of the commitments undertaken by China, the U.S. Government will devote considerable attention and resources to monitoring and enforcing Chinese compliance with its trade obligations.

The increases in the overall level of trade with China have been paralleled both by a steady growth of U.S. investment in China and by increases in licensed trade of dual-use goods and technologies. The dollar value of licensed exports to China increased from approximately $515 million in calendar year 2001 to over $2.8 billion in 2002. And licensed trade would be substantially higher than that this year had we not decontrolled the export of general purpose microprocessors, thereby leading us to return without action license applications valued at over $5 billion, because a license is no longer needed for the export of such microprocessors to China, except for certain proscribed end-uses.

I should also note, however, that licensed exports to China constitute less than 15 percent of overall exports to China and less than 3 percent of the value of our trade deficit with China. Thus, the notion often put forward that, if we simply relaxed or eliminated export controls, our trade deficit would disappear or be greatly reduced, is simply not the case.

Moreover, China's performance in the area of nonproliferation and export controls has been less than fully satisfactory. A number of PRC [People's Republic of China] entities have exported sensitive items to countries of concern. The U.S. Government has imposed sanctions on these entities, and we have urged the PRC to strengthen the implementation and enforcement of its export control program. In addition, we held a large conference last month in Shanghai in coordination with China's Ministry of Commerce that focused on export controls.

We are also continuing to seek greater transparency regarding end-user assurances through our ability to conduct on-site checks in the PRC. If we want to be able to make licensing decisions based on the commercial bona fides of end-users, we need to be able to conduct routine end-use checks in China to verify that the items we export are being used for the appropriate purpose by the appropriate entity.

Such end-use verification visits by the Commerce Department are an ordinary part of strategic trade. They ensure that sensitive exports are not diverted to unauthorized end-users or end-uses and thereby strengthen confidence in our trade relationship. We conduct such end-use verification visits, without problem, in over 85 countries. However, we have difficulty on this issue in China, where the government often restricts our ability to conduct this routine activity. Although we have made some progress with the Chinese in this area, much more needs to be done in order to have an effective system in place. Without further progress, our ability to license exports to certain Chinese companies will decrease.

The Multilateral Regimes

Let me now touch briefly on another priority for us -- seeking to improve the effectiveness of the multilateral nonproliferation regimes. Over the past year, we have worked to strengthen each of the four multilateral regimes -- the Missile Technology Control Regime [MTCR], the Nuclear Suppliers Group [NSG], the Australia Group (which deals with chemical and biological weapons), and the Wassenaar Arrangement (which deals with advanced conventional weapons and sensitive dual-use items). For example, we have been successful in securing agreement in the MTCR to implement "catch-all" controls, in developing in the NSG an informal "watch list" of noncontrolled items that could be used to support nuclear weapons development activities, in securing agreement in the Australia Group to control a number of pathogens due to increasing concerns regarding bioterriorism, and in liberalizing certain Wassenaar controls while making progress toward agreement on several proposals at the upcoming December plenary. We will continue to work with each of the regimes to try to ensure that they respond effectively to the threats posed by global terrorism and by certain countries that seek weapons of mass destruction.

Working with Industry

In all of the activities I have just discussed, we want to work cooperatively and constructively with the U.S. business community. As I have stated in previous speeches, we believe that the government is dependent on a vibrant private sector working in partnership with us to protect our security and promote our economic well being. This partnership is especially important in the area of export controls. You are on the front lines in evaluating new customers and monitoring exports of your goods and services. And you possess expertise on cutting-edge technologies and the state of global economic competition that we need to tap into when formulating export control policy. Although I know that some of you at times get frustrated with our regulatory process, I believe that the Bureau of Industry and Security is an extremely user-friendly organization that does an excellent job working with the U.S. business community.

In Fiscal Year 2003, which just ended on September 30, we processed 12,444 export license applications, up more than 15 percent from the number of applications processed the previous fiscal year. Of these applications, approximately 84 percent were approved, with the remainder either denied or returned without action. We also processed close to 4,000 commodity classifications. And I am pleased to say that we currently have no backlog of deemed export license applications.

In addition, this past year we conducted over 110 outreach events around the country as well as four major overseas seminars -- in China, Japan, Korea, and Singapore. We also completely redesigned our Web site to make it more presentable and easier to navigate.

Outside of the domain of export controls, we have worked effectively with industry across a range of other security-related issues. For example:

-- In Fiscal Year 2003, our advocacy efforts contributed to U.S. defense export sales of approximately $4.5 billion, including military trucks to Hungary, aircraft engines to Japan, fighter aircraft to Poland, and radar spare parts to Sri Lanka.

-- We worked closely with U.S. industry and the Department of Defense through the Defense Priorities and Allocations System to expedite the supply of defense articles needed to support Operation Enduring Freedom in Afghanistan and Operation Iraqi Freedom.

-- Using this same authority, we worked with the Department of Homeland Security to ensure the timely delivery of industrial items for several critical civilian emergency preparedness programs.

-- And we continue to work with industry on matters relating to the implementation of the Chemical Weapons Convention, including hosting 9 inspections of U.S. industrial sites and conducting 12 site-assistance visits to help prepare for inspections.

Conclusion

We are thus pressing forward across a range of initiatives in the areas of regulatory policy and enforcement, international cooperation, and industry outreach and collaboration. As I noted at the outset, we are doing this in an environment of enormous change over the past two and one-half years. Some argued at the outset of the Administration that, in the post-Cold War world, we no longer needed export controls. But I think the events that have taken place since then have put this issue to rest. With globalization, our world has become a highly competitive economic environment; yet it also remains a dangerous place. Export controls will therefore continue to play an important role in international trade. Indeed, they will be a feature of our trade and security landscape for years to come.

For that reason, we need to continue to adapt and refine our controls to ensure that they are never more extensive than is necessary and are targeted on the right technology and the right end-users. I am proud to say that one of the significant accomplishments of the past two years that I have not yet mentioned relates to something that we did not do. We did not overreact either to the events of September 11 or to the difficult economic times to tilt export controls too far toward "security" or toward "trade." We will need to maintain that balance as we continue to address the challenges of developing a durable legislative underpinning for export controls in this country and of building a more effective global regime for export controls.

We want to work with you as we address these and other issues in the months ahead. Again, thank you very much for coming to our Update Conference. We look forward to meeting with you during the next two days.

Created:20 Oct 2003

Updated: 20 Oct 2003