Export control overhaul sparks national security scrap

The effort  – the largest overhaul of export regulations in U.S. history – is meant to streamline the approval process governing overseas sales of thousands of seemingly benign items on federal control lists at the Commerce and State departments.

The former officials said they worry that the new regulations would ease the flow of goods with military uses and could allow American technology to fall into the wrong hands.

“In my mind, it’s a major deregulation,” said Steven Pelak, a former national coordinator for export control enforcement at the Justice Department.

Pelak, now a partner at Holland & Hart LLP, said the effort would make it easier for nations like Iran and China “to obtain our spare parts.”

“We put men and women in harm’s way,” said Pelak, who listed night vision technology and electronics as worrisome categories. “We need to protect them.”

Assistant Commerce Secretary Kevin Wolf, who has played a central part in overseeing the initiative, bristled at the suggestion that the effort in any way would weaken national security.

"It's completely untrue,” Wolf said, adding that the criticim was limited to a handful of people.

He said sensitive items – including those with night vision capabilities – would remain subject to the highest level of scrutiny under the new regulations.

The administration argues that past regulations did not sufficiently prioritize export controls. The system, for example, did not distinguish between an F-18 and its individual parts, leading to “a disproportionate focus on the least sensitive items such as nuts, bolts and screws instead of the most sensitive items,” according to guidance issued by the White House.

“Why are we spending so much of our focus working on basic items?” Wolf questioned.

Those who have long pushed for reform of the nation’s Cold War-era rules contend the new regulations won’t make a difference in which items can be exported. Rather, they argue, they will merely cut unneeded bureaucracy.

Remy Nathan, vice president of international affairs at the Aerospace Industries Association, said the Department of Defense (DoD) has been central to decisions about potentially sensitive items.

“I have the utmost trust that the administration went through this entire process primarily from a national security lens,” Nathan said. “At the end of the day, DoD holds the trump card on all things technology, when it comes to the exports.”

Dating to the 1960s, regulations at State and Commerce require companies to apply for federal approval to export any of tens of thousands of items that are on federal control lists.

The private sector has derided the system as antiquated, arguing that exports myriad nuts, bolts and other commonplace items face needless restrictions because they are listed among materials that could used to build weapons.

In 2009, President Obama announced plans to reform the system. Four years later, regulations for the first two of 19 categories of items took effect Tuesday.

The new regulations involve transferring thousands of less significant military items that don’t warrant the tight controls of the State Department’s U.S. Munitions List to a more flexible list at the Commerce Department. 

Eventually, the two lists could be merged and overseen by a new export control agency charged with licensing exports and enforcing the new regulations, though that step would require congressional action.

The first tranche of regulations to take effect reflect two categories of exports: technology used in military aircraft and military aircraft engines. Licensed exports of the two categories amount to $21 billion a year, according to the White House.

Given that as many as three-quarters of the items that make up the two categories could shift to the more flexible Commerce Department list, the value of the exports is largely to increase under the new regulations, according to the AIA.

Cumbersome approval processes have spawned a cottage industry of consultants who offer seminars aimed at helping small and mid-sized firms avoid costly penalties – and even imprisonment – for unwittingly violating the regulations, Nathan said.

Industry pushed for rules to simplify the process.

But critics say the new regulations muddle the system further, and could actually hurt American businesses.

William Lowell, a former director of the State Department's Office of Trade Controls, pointed to research showing the U.S. defense procurement expenditures have doubled over the last decade, as have U.S. arms’ hare of the global market.

But industry employment has remained stagnant and, in recent years, decreased.

“While having all this spending and all these exports jobs are flat and declining, which tells your there is a shift under way to the internationalization of the defense industry,” said Lowell, who is now managing director of Lowell Defense Trade, LLC.

Lowell and Pelak said other nations had lobbied the U.S. government in support of eased restrictions on exports. Multinational countries are also pushing the effort, which could leave them better equipped to rely more heavily on overseas engineers to work with U.S. technology.

“To me it’s a disservice to American industry,” Pelak said.

Nathan countered that the initiative has broad support from American business groups, the Obama administration and Republicans and Democrats in both chambers of Congress.

“This was not a process that was steamrolled by anybody. This administration has been painstaking in terms of looking over all this stiff from a national security perspective,” he said.

“I’m not worried about outsourcing. I’m looking forward to a resurgence of American competitiveness,” he said, referring to small and medium-sized businesses.