Obama forges ahead with historic overhaul of export controls

The Obama administration has begun to roll out a series of regulations that would represent the largest overhaul of federal export controls in U.S. history.

But lawmakers, who must approve a central component of the effort, appeared torn Wednesday between the economic benefits it would yield and potential national security threats that could arise if U.S. technology were to fall into the wrong hands.

{mosads} The State and Commerce departments in recent days have issued hundreds of pages of regulations to begin the process of streamlining and updating Cold War-era rules for exporting items deemed sensitive.

 Current regulations, rooted in the 1960s, require companies to apply for federal permission to export tens of thousands of items that are on federal control lists. Critics say the system is outdated and needlessly protects nuts, bolts and other seemingly benign items that could be used to build weapons.

 “It’s cumbersome, complex and incorrectly controls too many items as though they were crown jewel technologies,” Thomas Kelly, acting assistant secretary of state, said during a hearing before the House Foreign Affairs Committee.

 The new rules, long sought by American businesses, are designed to ease the flow of goods while adjusting export controls to account for the new national security realities of the post-Cold War world.

 “We no longer face a monolithic adversary like the Soviet Union,” Kelly said. “Instead, we face terrorists seeking to build weapons of mass destruction, states striving to improve their missile capabilities and illicit front companies seeking items to support such activities.”

 President Obama announced the reform effort in the first year of his presidency. It involves a multi-phased approach designed to modernize and simplify the system.

 First, thousands of less significant military items that don’t warrant the tight controls of the State Department’s U.S. Munitions List would be transferred to a more flexible list at the Commerce Department. Ultimately, the two lists would be merged and overseen by a new export control agency that would be charged with licensing exports and enforcing the new regulations. 

 The latter step would require congressional action, but lawmakers have reservations. Rep. Ileana Ros-Lehtinen (R-Fla.), who has resisted the plan, said she favors a limited legislative approach. 

 “We can all agree that generic items like bolts, nuts and wires … should not be regulated in the same manner as truly sensitive defense articles,” Ros-Lehtinen said. “This is not the path that the administration has chosen. Instead it has opted to act unilaterally in forming export controls, and the scope of its agenda is so sweeping and so complex in its implementation that it raises several concerns.”

 Lawmakers questioned whether the new rules might be too lax. Ros-Lehtinen asked whether license exemptions in the administration’s plan — meant to ease exports to friendly nations — might allow rogue regimes in Iran and North Korea to obtain parts for helicopters, fighter jets or tanks. 

 Kelly, of the State Department, countered that the administration’s plan is designed to impose greater oversight over a smaller number of sensitive items, a concept often described as akin to building a taller fence around a smaller yard. 

 If that’s the plan, the administration would need a “faster gatekeeper,” Rep. Brad Sherman (D-Calif.) said. He pointed to past backlogs in license requests from companies seeking to export products overseas. 

 Last year alone, the State and Commerce departments processed more than 100,000 export licenses for some 13,000 companies, administration officials testified. 

 Sherman said license approvals should not be based solely on national security concerns, but also economic ones. He called for a provision in the regulations requiring agencies to protect valuable domestic technology from being exported in order to ensure American jobs aren’t taken along for the ride. 

 “If you leave that out of the decision-making process, what looks like an effort to enhance America’s position will actually hurt it,” Sherman said. 

 Industry groups maintain that export control reform would be a boon for the economy. The existing web of regulations spans across multiple agencies and is so complex that some smaller firms are hesitant to attempt exports for fear they might break the law, said Remy Nathan, vice president of international affairs at the Aerospace Industries Association.

 Coupled with outdated controls on thousands of individual items, the rules are having a significant chilling effect on export activity across several industries, he said. 

 “It’s a huge problem when you aggregate it all together,” he said. 

 The new rules would reduce costs and speed up the supply chain, especially for smaller and medium-sized firms ill-equipped to deal with the bureaucracy. 

 To that end, the Obama administration has released the first round of items to be removed from the munitions list. More than 400 pages of new regulations reflect just two of 19 categories of items — engines and aircraft materials. The remaining categories would be released over the course of this year.

 Business groups will have 180 days to comply with the new rules as they are finalized. 

 Whether the administration will be ready to carry them out after that, however, remains to be seen.

 “It is uncertain whether executive branch agencies themselves are fully prepared for these changes, both with respect to licensing and enforcement functions,” said Rep. Ed Royce (R-Calif.), chairman of the Foreign Affairs panel.

This story was corrected at 6:41 p.m. on Thursday to corrrect the number of export licenses processed by the departments of Commerce and State.