The Politics of Export Control Reform: Why Less Licensing = More Complexity

by Gary Stanley

Just as with past export control reform efforts in the Clinton and Bush II years, the Obama Administration started with the best of intentions to make U.S. export and re-export control rules more straightforward and less burdensome.  Without dispute, it has pushed through broader changes than any of its predecessors.

Like its predecessors’ changes, however, the Obama Administration’s may have reduced the licensing burden, but at the expense of making U.S. export and re-export controls more difficult to understand and administer.  The reason lies in the politics of U.S. export controls.

Export controls are clearly political in that they are a tool designed to further U.S. national security and foreign policy interests.  There’s a domestic political element as well.  In the case of the Obama Administration effort, one of the most important domestic political drivers was the President’s 2010 pledge to create 2 million new jobs by doubling U.S. export control growth by 2015.  Export control reform was seen as an important step in achieving this goal.

In any regulatory reform effort, however, various stakeholders within executive branch agencies and the Congress vie to advance their positions and protect their “turf.”  No matter how straightforward initial draft proposals may be, putting them through such a political meat grinder inevitably results in compromise language that loosens requirements in some respects but tightens them in others.

Moreover, any time a president promises a regulatory change, it puts pressure on government agencies to make it happen – in sync with national election cycles, if at all possible.  Those artificial election deadlines give added political leverage to those within agencies and the Congress who oppose reform or believe the initial proposals go too far and need to be tempered with specific requirements or limitations.

So, it should be no surprise that less licensing almost always means more complexity.  Going forward, exporters and re-exporters must consider not two control lists, but three.  They must apply new ITAR and EAR definitions of “specially designed” that, despite hopes to the contrary, are likely to befuddle both businesses and juries faced with having to apply them.  The multiple paperwork requirements associated with License Exception STA will mean that many U.S. exporters will almost certainly omit one or more steps and thus force their foreign customers to choose between seeking re-export licenses or violating the EAR’s General Prohibition 10.  As a senior DDTC official remarked about efforts to modernize ITAR policies on dual/third country nationals, “I set out to design a race horse and ended up with a camel!”

For many exporters, the new rules will be a boon, for others, not so much.  Beware, though, that many foreign customers are worried:  If their U.S. suppliers didn’t understand U.S. export controls before, how will they ever master this much more complicated system?

Gary Stanley is the President of Global Legal Services, PC, a Washington, DC-based law firm focusing on trade compliance and other international business issues. Gary represents, among others, numerous U.S., Canadian, and European companies on defense export control issues.

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