7
Elements of a New Response: U.S. Policy

U.S. policy for national security export controls was established under the influence of three international conditions that molded its purpose, its feasibility, and its effectiveness. First, the central objective of denying or retarding access by the Soviet Union and other member countries of the Warsaw Treaty Organization (WTO) and the People's Republic of China to militarily relevant technology was a natural, politically accepted extension of the post-World War II Western security arrangement. Second, the feasibility of this policy depended substantially on the fact that the most advanced technologies were being developed almost exclusively by the Western allies (principally the United States) and were being produced largely at government initiative in direct support of weapons programs. Third, the effectiveness of export controls was considerably enhanced by the fact that the Soviet Union and its allies were dedicated to isolating their economies from the rest of the world.

Under these conditions, a strong consensus emerged among the Western allies to retard Soviet military development; a consensus that then translated operationally into U.S. and CoCom export controls. Controls were imposed on an extensive list of items, including many of only indirect military significance. The adverse consequences for East-West trade were minimized in the early years by prevailing market disjunctions—between military and commercial products and between ''free market" and centrally planned economies.

For the United States in particular, its commanding economic and technological position in the post-World War II environment ensured that export



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Finding Common Ground: U.S. Export Controls in a Changed Global Environment 7 Elements of a New Response: U.S. Policy U.S. policy for national security export controls was established under the influence of three international conditions that molded its purpose, its feasibility, and its effectiveness. First, the central objective of denying or retarding access by the Soviet Union and other member countries of the Warsaw Treaty Organization (WTO) and the People's Republic of China to militarily relevant technology was a natural, politically accepted extension of the post-World War II Western security arrangement. Second, the feasibility of this policy depended substantially on the fact that the most advanced technologies were being developed almost exclusively by the Western allies (principally the United States) and were being produced largely at government initiative in direct support of weapons programs. Third, the effectiveness of export controls was considerably enhanced by the fact that the Soviet Union and its allies were dedicated to isolating their economies from the rest of the world. Under these conditions, a strong consensus emerged among the Western allies to retard Soviet military development; a consensus that then translated operationally into U.S. and CoCom export controls. Controls were imposed on an extensive list of items, including many of only indirect military significance. The adverse consequences for East-West trade were minimized in the early years by prevailing market disjunctions—between military and commercial products and between ''free market" and centrally planned economies. For the United States in particular, its commanding economic and technological position in the post-World War II environment ensured that export

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment controls would have only limited impact on the overall U.S. competitive position in international trade. By the beginning of the 1980s, however, those advantages had disappeared and the adverse consequences of export controls on commercial trade between the United States and other Western countries had become increasingly apparent. Moreover, by the end of the decade, radical political and economic changes in Eastern Europe and, to a lesser extent, in the Soviet Union had created a potentially new basis for East-West relations. THE NEED FOR EXPORT CONTROLS IN THE NEW ERA The conditions that determined the initial feasibility and effectiveness of national security export controls have now changed dramatically and the nature of the Western security alliance seems likely to change over the next decade as well. The current challenge is to fashion a response that capitalizes on the enormous political and economic opportunities presented by the changes in Eastern Europe and the Soviet Union, while managing the risk associated with legitimate security concerns. The earlier review in Chapter 5 of the changing calculus of U.S. national security interests, which included an assessment of residual Soviet military capability and of new and growing dangers in other parts of the world, demonstrates the need to reexamine and reshape export control policy. In reality, although all of the CoCom countries are interested in eliminating restrictions on trade in dual use items with Eastern Europe and, to the extent that it is prudent, with the Soviet Union, no country in the Western alliance has expressed any willingness to see the capabilities of the Soviet military—particularly its strategic nuclear forces—enhanced through unrestricted exports. Thus, there continues to be a multilateral consensus within the traditional framework of CoCom, but with a narrower scope and focus. Carefully tailored and/or refashioned, multilateral export controls can be appropriate and viable in support of the following policy objectives: Constraining access by the Soviet military to technology and end products that contribute significantly and directly to the improvement of Soviet weapons systems capabilities. Constraining access to advanced technology and end products that contribute significantly and directly to the development of advanced conventional weapons systems by countries that pose a threat of aggression. Constraining access by countries of proliferation concern to nuclear, biological, chemical, and missile delivery technologies and know-how. (Export controls may not always be the optimal strategy for dealing with these problems, however.)

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment Imposing multilaterally agreed sanctions for violations of international agreements or norms of behavior. These four objectives are very different from one another operationally. Constraining the improvement of Soviet weapons systems, for example, primarily involves a single target country and trade in high technology available from a relatively small group of nations. In contrast, constraining the proliferation of chemical weapons potentially involves many countries and many types of technology that are much less sophisticated and much more widely available. Consequently, forms of control that might be effective and sensible for constraining Soviet weapons systems improvement might be both ineffective and unreasonably burdensome in constraining chemical weapons proliferation. With these differences in mind, the panel looked at various specific types of policy mechanisms. Table 7-1 lays out a typology along with the panel's judgment about the general circumstances in which each type of control is likely to be most appropriate. Only the first five mechanisms would fall within the traditional concept of "export controls," and different combinations of these mechanisms will be optimal in achieving the four policy objectives described above. Given the relative paucity of data concerning many of the issues surrounding the various proliferation problems, however, the panel has not formulated firm recommendations regarding which of these mechanisms of control is likely to be most effective in achieving nonproliferation objectives, although some general criteria are discussed in Chapter 8. Given the importance of designing a system that does not disproportionately handicap U.S. trade, it is imperative that any of the legally binding forms of export management, whether embargo or any of the four other mechanisms of explicit control listed above, be imposed only on the basis of a careful analysis of the control-sensitive chokepoints and of whether the proposed solution is likely to be effective and equitable. There is some potential that, in the future, circumstances in the Soviet Union and/or other currently proscribed countries will evolve to the point that it would be possible, and perhaps even desirable, to eliminate completely export controls on dual use technology to these destinations. To encourage this evolution and to ensure that institutional momentum does not maintain the use of export controls longer than prudence requires, the United States should work with the other CoCom countries to develop an explicit multilateral policy statement that outlines the circumstances under which dual use export controls can and should be terminated.

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment TABLE 7-1 Mechanisms of Export Management Type Description When Appropriate Total embargo All or substantially all exports to target country prohibited. Examples: embargoes of Vietnam, Libya, Iraq under the Trading with the Enemy Act or the International Emergency Economic Powers Act Wartime or other acute national emergency or when imposed pursuant to United Nations or other broad international effort Selective export prohibitions Certain items barred for export to target country. Examples: no-license policies for the Soviet bloc under the International Traffic in Arms Regulations (ITAR) When supplier countries agree on items for denial and cooperate on restrictions Selective activity prohibitions Exports for use in particular activities in target country prohibited. Examples: Department of Energy prohibition on nuclear activities in countries that are not signatories to Nuclear Non-Proliferation Treaty When supplier countries identify proscribed operations and agree to cooperate on restrictions Transactional licensing Items require government agency licensing for export to particular country or country group. Example: Commerce Department individual validated license. Licensing actions may be conditioned on end-use verification. e.g., import certificate/delivery verification procedure, or postexport verification, e.g., for supercomputers When items are inherently sensitive for export to any destination, e.g., munitions, or when items have both acceptable and undesired potential applications and are subject to an effective multilateral control regime Bulk licensing Exporter obtains government authority to export categories of items to particular consignees for a specified time period. Example: Commerce Department distribution license, ITAR foreign manufacturing license Same as preceding circumstances, but when specific transaction facts are not critical to effective export control

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment Type Description When Appropriate Preexport notification Exporter must prenotify shipment; government agency may prohibit, impose conditions, or exercise persuasion. Example: requirement by Office of Foreign Assets Control for third-country subsidiary exports to Iran during the 1979-1980 hostage crisis Generally regarded as an inappropriate export control measure because exporter cannot accept last-minute uncertainty Conditions on general authority or right to export Exporter not required to obtain government agency license but must meet regulatory conditions that preclude high-risk exports. Examples: Commerce Department general licenses; CoCom's general license free-world (GFW) and general license for intra-CoCom trade (GCT) Appropriate when risk of diversion or undesired use is low Postexport recordkeeping Exporter must keep records of particulars of exports for specified period and submit or make available to government agency. Example: Export Administration Regulations §787.13 Appropriate means exist to monitor nonsensitive exports for possible diversion Although the panel did not consider itself qualified to specify the circumstances in detail, some candidate criteria for determining when export controls should be terminated follow: Effective and verifiable conventional arms control agreements in Europe beyond those already agreed to in the Conventional Forces in Europe (CFE) treaty. Effective and verifiable nuclear arms control agreements among the United States, France, the United Kingdom, and the Soviet Union. Democratically elected government in the Soviet Union. Demonstration of a Soviet commitment to work cooperatively, both bilaterally and multilaterally (including within world organizations such as the United Nations), to achieve a stable and secure international environment.

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment A NEW APPROACH TO EAST-WEST EXPORT CONTROLS The traditional definition of the Soviet Union, the other (former) member countries of the Warsaw Pact, and the People's Republic of China as the most immediately threatening adversaries of the Western alliance is, for reasons elaborated in Chapter 5, largely outdated. The circumstances, therefore, require a new approach. The political and economic changes in the Soviet Union and Eastern Europe have created new opportunities. Of greatest relevance to this study is the possibility that, for the first time since World War II, the United States and the Soviet Union can now work cooperatively in areas of mutual security concern, such as proliferation. Simultaneously, the disintegration of the WTO, combined with the internal economic and political problems in the Soviet Union, means that the West can accept somewhat larger risks without seriously endangering national security. Taken together, these increased opportunities—and increased margin for error—suggest that the West can now safely move from a policy of general denial (with limited exceptions) of dual use controlled items to a policy of presumed approval to export, predicated on verifiable enduse conditions. The arguments for such a transition are clearly greatest for those nations of Eastern Europe that now pose a national security threat to the West only because of the possibility that goods and technologies sold to them might be reexported to the Soviet military or to countries of concern for other reasons. But the case also holds for the Soviet Union itself, which for the foreseeable future will need Western goods and technologies if its efforts at building a modern economy are to have any chance of success. There undoubtedly are risks attendant to the improvement of long-term capabilities. The most obvious is the outright loss of control over the end use of sensitive dual use items, particularly in the event of an outbreak of hostilities (when it obviously would no longer be possible to verify end use). There also are dangers under this scheme of diversion (particularly diversion-in-place), reverse engineering, and dissemination of technical data and know-how. But the fact remains that continued pursuit of a policy of general denial is neither administratively feasible in light of the multiple channels and sources for acquisition nor politically desirable in the context of the positive trend in U.S.-Soviet relations with the demise of the WTO and the signing of the CFE treaty. Under a new export control policy based in large part on verifiable end use, moreover, measures such as government assurances of civilian end use and restricted resale build confidence between trading parties and are useful tools in managing the security risk inherent in the export of advanced goods. Predicating the sale of advanced, and previously embargoed, end products on guarantees against military end use and unauthorized resale allows for economic progress while limiting military risk. Arrangements for continuing,

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment periodic inspection of selected items could lend further confidence to the integrity of the sale. Certainly, the recent experience with on-site inspection in the execution of the Intermediate-Range Nuclear Forces treaty and the inclusion of comprehensive on-site inspection regimes in the CFE treaty enhance the possibilities for expanded monitoring of sensitive items across international borders. NEW TARGETS FOR NATIONAL SECURITY EXPORT CONTROLS The reduction of East-West tensions and increased trade opportunities are political and economic goals held not only by the United States and the Soviet Union, but also by the other members of NATO, Japan, Australia, and the East European countries. Moreover, these countries also share mutual security concerns that can be translated into mutually beneficial collective security measures. As noted in Chapter 5, the potential threat from state-supported acts of terrorism and escalating regional conflicts is on the rise. Defense against acts of terrorism is one of the most troubling challenges faced by governments. In most, if not all cases, the regional enmity that threatens to escalate into armed conflict has existed for centuries. It is not the conflict that is new, but the ability of regional actors to wage war with increasingly dangerous military hardware, including weapons of mass destruction. The unconstrained spread of advanced conventional weapons also could have a dramatically destabilizing effect in many regions of the world. The prospect of a nuclear exchange or the widespread use of chemical weapons is a critical security issue of global proportion. For the reasons identified in Chapter 8, traditional export controls, which focus on particular items and subject them to broad regulatory measures (e.g., transactional or bulk licensing), are not likely to be as effective in dealing with emerging proliferation concerns as they have been in addressing the Cold War threat, because they are not universally adhered to nor equally enforced, because they only partially constrain indigenous capacity, and because technical information and assistance cannot be contained completely. Moreover, many items that have proliferation significance in very selected circumstances are widely available and have predominantly innocent commercial applications. For example, as the concerns about the development of an alleged chemical weapons manufacturing facility at Rabta, Libya, demonstrate, the differences between a weapons facility and a pharmaceutical plant are often difficult to prove conclusively (particularly in the absence of on-site inspection). On the other hand, traditional item-focused export controls, multilaterally applied and enforced, can help to constrain the spread of weapons and the

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment technical capability to produce them. They also may be useful in isolating countries or parties that violate accepted standards of conduct. For export controls to be effective in this new environment, they must be fashioned so as to achieve a high level of international cooperation that will ensure even-handed application while avoiding unnecessary injury to world commerce. The effectiveness of traditional export controls depends on a number of problematic conditions, including the following: Agreement by all countries that possess either the weapons or the capability to produce weapons to control trade in the component technologies and end products. Agreement by participating countries on the targets of export controls. This could be countries or regions that are considered dangerous or volatile, specific projects that raise concern, or specified, proscribed end uses. Agreement by participating countries on the items to be controlled. The actual controllability of the targeted items. Agreement by participating countries on appropriate licensing and enforcement measures. Agreement by participating countries on accountability to each other and on sanctions for violations. Despite the daunting problems inherent in the conditions listed above, multilateral consensus on the goals, targets, and mechanisms of export controls is essential and should be a critical foreign policy priority for the United States. This includes reviewing the organization and operation of control regimes aimed at East-West trade, as well as seeking the cooperation of the Soviet Union, China, and other countries in controlling the global proliferation of arms. In fact, superpower cooperation to prevent the proliferation of advanced conventional weapons and weapons of mass destruction could significantly improve the prospects for world stability. In more operational terms, it is critical to include the Soviet Union in any effort to control the spread of weapons and weapons production capabilities. The inclusion of other supplier countries that have traditionally been the target of export controls is more problematic. Consider, for example, India and China. Neither country has signed the Nuclear Non-Proliferation Treaty (NNPT); China has already developed accurate, long-range missile launch capabilities and India reportedly has developed a similar but more limited missile delivery system. Thus, it is likely that such countries will remain the target of controls while, at the same time, their participation in nuclear and missile control regimes is being sought. Perhaps the most pivotal factor in determining the success of export control regimes is the nature of members' responsibility to each other. It is the extent

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment of this perceived responsibility that determines, in large part, whether a particular country becomes a member of a given regime or continues to be identified as a potential target of controls. Beyond the effectiveness of export controls in terms of security objectives, multilateral cooperation is also important to minimize the economic costs of export controls. So long as controls are imposed multilaterally, in form and practice, the costs of controls are shared equally. The United States, however, has a history of unilateralism in its export control policies. To be effective, proliferation controls must be focused only on narrowly proscribed military activities or items that are required directly for weapons systems and must include, to the extent practicable, verifiable end-use assurances. Lacking such specificity, efforts to control exports of proliferation-related technologies create a risk similar to that encountered in the case of CoCom controls on dual use technology—namely, imposing significant economic costs that may be disproportionate to their effectiveness. LIMITATIONS ON CERTAIN TYPES AND USES OF EXPORT CONTROLS Serious discontinuities exist between export controls on the commercial sale of munitions under the Arms Export Control Act and the implementing International Traffic in Arms Regulations on the one hand and the transfer of munitions on a government-to-government basis on the other. The problem of how to impose reasonable limitations on foreign military sales extends well beyond the United States, and it is being exacerbated by the overcapacity of arms production worldwide. This is a significant and troubling problem; though not in the panel's mandate, it is urgently in need of study. A second conceptual problem—and one that lies more squarely within the panel's mandate—concerns the lack of clarity regarding the use of export controls to protect the national security interests of the United States versus their use to pursue broader U.S. foreign policy interests and commitments. In the Export Administration Act (EAA), a legal distinction is drawn between the application of national security export controls,* which are imposed pursuant to Section 5, and foreign policy export controls,† which are imposed under Section 6. This distinction has not always been observed in practice. Indeed, proliferation controls, though directly relevant to U.S. national se- *   National security export controls are procedures designed to regulate the transfer of items from one country to another in such a way as to protect militarily important technology from acquisition by potential adversaries. †   Foreign policy export controls are restrictions imposed on the export of general classes of items to one or more specified countries in order to further the foreign commitments and interests of the United States or to fulfill U.S. international obligations.

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment curity, currently are imposed under Section 6 of the EAA as "foreign policy" controls. The 1982 controls directed at the Soviet gas pipeline to Western Europe were justified as a foreign policy measure responsive to the Soviet suppression of the Solidarity movement in Poland. In contrast, the 1980 wheat embargo, which was designed to pressure the Soviet Union to change its policy toward Afghanistan, was justified as a national security measure. Further confusion arises from the broad emergency power vested in the executive branch under the International Emergency Economic Powers Act (IEEPA). By declaring an "emergency," which may arise from either national security or foreign policy concerns, the President may invoke broad export control measures, free of the limitations that Congress has written into Section 5 of the EAA (e.g., prohibitions on unilateral national security controls) or Section 6 (e.g., determinations that controls will be effective in practice to achieve objectives). National security is clearly the paramount goal of U.S. foreign policy.* But the blurring of the distinction between the uses of export controls permitted under the relevant U.S. laws detracts from the legitimate application of export controls for either purpose. It also creates confusion and doubts about U.S. intentions among those countries cooperating with the Western strategic technology control effort, as well as difficulties for U.S. exporters. In contrast to national security controls, which have been applied relatively consistently over an extended period of time to a consistent group of countries, foreign policy controls may be applied in almost any situation in which another country is seen to be conducting its affairs in a manner not to the satisfaction of the United States. Moreover, because the need for the application of foreign policy controls cannot be anticipated by industry, they can affect virtually any transaction in international trade. Thus, the perceived threat of new foreign policy control measures probably is at least as responsible for causing foreign companies to design-out† U.S. products and suppliers as are national security export controls. Indeed, many of the current problems with the U.S. export control regime relate to both foreign policy and national security export controls. For example: The United States has imposed foreign policy and, to a lesser extent, national security controls unilaterally. U.S. implementation of multilateral national security controls generally has been more restrictive than that of other countries and therefore unilateral in practice.‡ *   Foreign policy as used here, however, includes broader foreign interests of the United States than those related directly to national security. †   This is the phenomenon known as "de-Americanization" of product lines. ‡   Both of these issues are addressed in greater detail in Chapter 6.

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment Both sets of controls incorporate extraterritorial features that undermine their acceptance and effectiveness. Neither foreign policy controls nor national security controls state the conditions necessary for the restrictions to be relaxed or removed. Foreign policy export controls probably are more difficult to dismantle than national security controls as international conditions evolve. It is often argued, for example, that even though the imposition of new controls would not be justified by current conditions, ending old controls might send the wrong signal to the target country. The U.S. embargo on trade with Vietnam may have persisted largely for this reason. Both sets of controls are administered by more than one agency under statutes that have different criteria and under distinct regulatory regimes. These diverse approaches lead to inconsistent and disparate results that disadvantage U.S. Industry. In addition to the problems listed above, the distinction between some foreign policy controls and national security controls is artificial. For example, missile, nuclear, or chemical weapons proliferation could directly affect the national security of the United States and its allies. Despite this fact, missile-and chemical-related items are controlled primarily under foreign policy, rather than national security, legislative authority, and nuclear export controls are maintained as both a national security and a foreign policy concern as a result of the existence of another relevant statute. These threats should be recognized as legitimate national security concerns. Serious consideration should be given to whether authority for export controls other than for reasons of national security or to implement the mandate of a responsible international organization or agreement can be justified, particularly given their relative ineffectiveness, and in light of today's highly competitive international economy. Given the close relationship between national security export controls and controls based on foreign policy considerations, the panel makes the following recommendations: Foreign policy controls maintained to prevent the proliferation of missile delivery systems or nuclear, chemical, or biological weapons should be reclassified under the rubric of ''proliferation controls" to differentiate them appropriately as an element of U.S. national security policy. The United States should not impose foreign policy controls on a continuing basis, except in those circumstances in which sufficient multilateral agreement and cooperation exist to make them efficacious and to prevent discrimination against U.S. product and technology suppliers. If unilateral foreign policy controls are used, then the setting and enforcement of time limitations become imperative. The United

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Finding Common Ground: U.S. Export Controls in a Changed Global Environment States should, in all cases, seek to negotiate multilateral implementation and enforcement, or informal cooperation (whenever possible) from other countries in similarly restricting trade. However, the United States will find it difficult to lead if few other countries can be convinced to follow. Under these circumstances, the imposition of unilateral foreign policy controls may become counterproductive and damaging to U.S. economic interests and every effort should be made to remove them at an early time. The criteria for the imposition and retention of national security and foreign policy controls set forth in Sections 5 and 6 of the Export Administration Act of 1979, as amended, should be reviewed and made more explicit. To the extent that the President chooses to invoke export control measures through the use of the International Emergency Economic Powers Act, the criteria for its application should be reviewed and modified so that they are similar to the conditions that Congress has specified in Sections 5 and 6 of the EAA with respect to controls imposed for national security or foreign policy reasons. "Emergency powers" granted to the President under the IEEPA generally should not be imposed for more than six months before Section 6 of the EAA must be invoked. The "sunset" provision for foreign policy controls should be enforced in order to ensure that, as in the case of more traditional national security controls, restrictions do not remain in force long after the political, military, or technological rationale for their enactment has ceased to exist.