?Positive? export reform

æPositiveÆ export reform U.S. industry must stay engaged to ensure successful implementation.

By Chris Gillis

   U.S. export control reforms may be well underway, but how they are shaped and ultimately implemented will likely rest on the shoulders of the nation’s exporters, industry experts say.
   Since the White House announced its intention to drive the reform last spring, the Commerce, State and Defense departments have made significant strides toward regulatory simplification and streamlining. Yet there’s concern that the effort could sputter if the industry
takes its eye off the process.
   ‘The exporting community has to guard itself against becoming complacent while waiting for reform to take place,’ warned Paul DiVecchio, president of Boston-based export consultancy DiVecchio & Associates. ‘The world turns and therefore export controls continue to change in order to meet the national security and foreign policy needs of this country.’

DiVecchio

   ‘This process was driven by the industry in the first place,’ added Douglas N. Jacobson, an attorney specializing in trade compliance regulations. ‘If the industry isn’t a partner in the process or fails to advocate for specific changes, then the reform will become weakened.’
   For nearly two decades, U.S. exporters and their trade associations have pressed Capitol Hill and previous administrations for significant changes to the country’s Cold War-era export controls, citing hundreds of millions of dollars in lost sales to overseas competitors. While some regulatory improvements have been made, they have been largely piecemeal and overshadowed by cumbersome export licensing processes and persistent agency jurisdictional disputes.
   The primary agencies in charge of overseeing the nation’s export controls are:
   ‘ State’s Directorate of Defense Trade Controls.
   ‘ Commerce’s Bureau of Industry and Security.
   ‘ Defense’s Defense Technology Security Administration.
   ‘ Treasury’s Office of Foreign Assets Control.
   While these agencies are supposed to work collaboratively in their review of export license applications, any one of them can put a hold on an export, effectively killing a business transaction between a U.S. company and an overseas buyer.
   The industry was pleasantly surprised when, in April 2010, Defense Secretary Robert Gates announced the Obama administration’s plans for sweeping export control reform, including the creation of a single control list administered by one agency using a standard information technology platform. Under the plan, a single agency within the Homeland Security Department will be responsible for enforcement.
   The administration said it would conduct its export control reform in three phases.
   In the first phase, which has been underway since shortly after the announcement, the government has developed criteria to form a tiered control list, with the ‘crown jewels’ and weapons of mass destruction in the top tier, and working downward based on maturity of the product or technology. A tiered control list is supposed to help government licensing officers prioritize applications. Today these items are split up among mainly two lists, the Commerce Control List (CCL) and U.S. Munitions List (USML), without priority to national security threat.
   The second phase will require the administration to align control agencies’ systems by putting in place licensing policies tied to the new control lists. This phase also includes the formation of a single licensing and enforcement agency and move to a single system, which is expected to be Defense’s more highly developed USXPorts system. In addition, the administration plans for the development of a single electronic interface to the system for exporters.
   The third and final phase of the reform, which will require some legislative action, includes:
   ‘ Merging the CCL and USML into one list.
   ‘ Creating a single, harmonized export-licensing agency.
   ‘ Combining Commerce’s Export Enforcement office with Immigration and Customs Enforcement’s Counter-Proliferation Program within a singular agency.
   ‘ Developing an IT platform that tracks a licensed export from application to when it leaves the U.S. port.
   The administration has already made some key decisions related to this phase of the reform, such as the Nov. 9 executive order to form the Export Enforcement Coordination Center in DHS.
   Jacobson said the administration’s interaction with industry on the reform so far has been ‘positive’ and ‘much more transparent’ then past administrations in attempting export regulatory change.
   Beth Peterson, president of BPE Global, a San Francisco-based industry consulting firm, said she is ‘very impressed with their approach to doing everything that can be done without congressional approval so they may get as much done before they hit a congressional roadblock.’
   The industry has especially praised Kevin Wolf, Commerce’s assistant secretary for export administration, for his role in driving the reform within the government. Wolf, who is known to carry a copy of the Export Administration Regulations in his pocket, even made himself available via teleconference for two hours every Wednesday from Dec. 22 to Feb. 2 to answer pre-submitted questions from the export industry.

Farrell

   ‘He’s a straight shooter and understands the industry,’ said Dennis Farrell, global export compliance officer for Analog Devices, an electronics firm located in Massachusetts.
   Farrell and four compliance officers from other New England-based technology exporters had lunch with Wolf at the Mass Export Center in late December to discuss export reform. ‘We felt like he’s one of us,’ Farrell said.
   Both the Commerce and State departments have released a flurry of proposed rulemakings since last spring (See list).
   ‘BIS has really made a strong effort to get the message out that they want industry feedback,’ said Larry Disenhof, group director of export compliance and government relations at Cadence Design Systems.
   Most companies are expected to respond to these proposed rulemakings via their trade associations. Several groups, such as the American Association of Exporters and Importers, National Association of Manufacturers, National Foreign Trade Council, TechAmerica, and Coalition for Security and Competitiveness, have remained active with offering comments to the agencies.
   ‘Trade associations are better suited for these activities, but they rely on input from industry because these are very fact-specific issues,’ Jacobson said.
   Many of the proposed rulemakings released by the agencies in 2010 will begin taking effect early this year.
   ‘Expect the changes that do not require congressional approval to occur fast and furious throughout the year,’ DiVecchio said. ‘Keeping up with these changes in a timely manner and interpreting the regulations and applying them to the company or university environment will be one of the biggest challenges to be faced in the export compliance arena.’
   The biggest obstacle for reform may be Capitol Hill. Although some lawmakers have spoken up for export reform, such as Reps. Donald A. Manzulla, R-Ill, and Howard L. Berman, D-Calif. of the House Foreign Affairs Committee; and Rep. Howard P. ‘Buck’ McKeon, R-Calif., chairman of the House Armed Services Committee, industry representatives have found an overall lack of interest in the legislative branch to pursue it.
   ‘Congress just doesn’t have a concept of how restrictive our current export regulations are, and I’m afraid that their ignorance will result in failure to approve the legislative changes that must happen,’ Petersen said.

Amero

   ‘Many in Congress don’t want to deal with export reform because it may appear to their constituents that they’re soft on terrorism,’ said Brian Amero, global trade compliance manager for North Reading, Mass.-based electronics firm Teradyne.
   In essence, export controls were developed to keep certain U.S.-made products and technologies out of the hands of pariah nations and terrorist groups, However, Amero said lawmakers need to understand that overly restrictive and cumbersome regulations make it difficult for U.S. companies to compete for business overseas. ‘We no longer have the secret sauce. Anyone can produce almost anything now,’ he said.
   Amero added that the lack of modern export controls only hurts national security and U.S. jobs.
   ‘It should be about helping pull our country out of the economic doldrums,’ Analog’s Farrell said. ‘If buyers become frustrated, they’ll get what they want from somewhere else.’
   Farrell noted that obtaining U.S. export licenses can take three to four months, while countries in Europe often turn them around in 10 days or less. ‘This is very frustrating for U.S. companies,’ he said.
   ‘It should be about building higher walls around fewer controlled items,’ Amero said. ‘If they do, it will result in the right thing and do it very well. It will improve both national security and trade. But the devil’s in the details.’
   Some believe corporate compliance managers must do a better job at educating their chief executives on how to assist with driving export reform on Capitol Hill. ‘The main issue is that CEOs don’t know enough about the need for export reform, and compliance managers aren’t getting the message to the CEOs,’ Peterson said.
   Even if Congress responds to the industry’s calls and moves on export reform-related legislation, exporters worry about the outcomes. ‘I’m still not convinced that Congress will do the right thing. I hope I’m wrong,’ Farrell said.