20 December 2001 Source: http://www.access.gpo.gov/su_docs/aces/fr-cont.html ------------------------------------------------------------------------- [Federal Register: December 20, 2001 (Volume 66, Number 245)] [Proposed Rules] [Page 65666-65667] From the Federal Register Online via GPO Access [wais.access.gpo.gov] [DOCID:fr20de01-18] ======================================================================= ----------------------------------------------------------------------- DEPARTMENT OF COMMERCE Bureau of Export Administration 15 CFR Parts 738 and 742 [Docket No. 011019257-1257-01] RIN 0694-AC48 Removal of Licensing Exemption for Exports and Reexports of Missile Technology-Controlled Items Destined to Canada AGENCY: Bureau of Export Administration, Commerce. ACTION: Advance notice of proposed rulemaking. ----------------------------------------------------------------------- SUMMARY: The Bureau of Export Administration (BXA) is reviewing the existing license exemption contained within the Export Administration Regulations (EAR) for the export of missile technology (MT)-controlled items to Canada, because of the recommendations contained in the Government Accounting Office Report entitled: ``Export Controls: Regulatory [[Page 65667]] Change Needed to Comply with Missile Technology Licensing Requirements'' (GAO-01-530). BXA is seeking comments on how removing the existing licensing exemption for MT-controlled exports to Canada would affect industry and more specifically the exporting community. DATES: Comments must be received by February 19, 2002. ADDRESSES: Written comments (three copies) should be sent to Sharron Cook, Regulatory Policy Division, Office of Exporter Services, Bureau of Export Administration, Department of Commerce, 14th and Pennsylvania Avenue, NW, PO Box 273, Room 2705, Washington, DC 20230; E-Mailed to: scook@bxa.doc.gov; or faxed to 202-482-3355. FOR FURTHER INFORMATION CONTACT: Steven Goldman, Director, Office of Nonproliferation Controls and Treaty Compliance, Bureau of Export Administration, Telephone: (202) 482-4188. Copies of the referenced GAO Report are available at the GAO website: http://www.gao.gov. [Copy below.] SUPPLEMENTARY INFORMATION: Background The Government Accounting Office (GAO) Report entitled: ``Export Controls: Regulatory Change Needed to Comply with Missile Technology Licensing Requirements'' (GA-01-530), recommended that the Department of Commerce amend the Export Administration Regulations (EAR) to require a license for the export of dual-use items controlled pursuant to the Missile Technology Control Regime (MTCR) to Canada. The GAO based its recommendation on a provision in the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 1991, which amended the Export Administration Act (EAA) of 1979 to require a license for any export of dual-use Missile Technology Control Regime (MTCR) controlled goods or technology to any country. In 1991, the Department of Commerce implemented the NDAA requirements in EAR by controlling MTCR Annex items on the Commerce Control List (CCL) under a new designated reason for control, ``missile technology (MT)'' and generally requiring a license for the export or reexport of these items and technologies. Many of these items were already on the CCL and controlled under foreign policy or national security reasons. However, the Department of Commerce did not revise the EAR's existing license exemption for exports to Canada to require licenses for MT-controlled items to Canada. The license exemption for Canada existed in the EAR many years prior to the enactment of the MT provisions of the EAA. Since the Hyde Park Declaration of 1941, the United States has authorized nearly all dual-use goods intended for consumption in Canada to be exported without a license, although any reexport of U.S.-origin items controlled for MT concerns from Canada would require a license from the U.S. Government. The Department of Commerce is interested in evaluating the impact on U.S. exporters of removing the existing licensing exemption for MT-controlled exports to Canada. The current missile technology (MT) controls maintained by the Bureau of Export Administration (BXA) are set forth in the Export Administration Regulations (EAR), parts 742 (CCL Based Controls) and 744 (End-User and End-Use Based Controls). A regulatory implementation would entail adding an ``X'' in the row for Canada under the column from ``MT 1'' in the ``Missile Tech'' column of Supplement No. 1 to part 738, Commerce Country Chart. In addition, section 742.5 of the EAR would be revised to remove the phrase ``except Canada'' in the third sentence of paragraph (a)(1). To ensure maximum public participation in the review process, comments are solicited for the next 60 days on the removal of the existing licensing exemption for the export of MT-controlled goods and technologies to Canada. BXA is particularly interested in the experience of individual exporters with the licensing exemption for MT- controlled exports to Canada, with emphasis on economic impact and specific business circumstances. BXA is also interested in industry information relating to the following: 1. Information on the effect of a licensing requirement for the export of MT-controlled items (commodities, software, and technology) to Canada on sales of U.S. products and market-share. 2. Information on joint-ventures or U.S. industry owned facilities in Canada that would be affected by the removal of a licensing exemption for the export of MT-controlled items to Canada. 3. Information on controls maintained by U.S. trade partners (i.e., to what extent do other MTCR Partners have similar exemptions for the export of MT-controlled goods and technology to other countries)? 4. Additional suggestions for revisions to the Canadian licensing exemption policy. 5. Data or other information as to the effect of a Canadian licensing requirement on overall trade, either for individual firms or for individual industrial sectors. Parties submitting comments are asked to be as specific as possible. Accordingly, the Department encourages interested persons who wish to comment to do it at the earliest possible time. The period for submission of comments will close February 19, 2002. The Department will consider all comments received before the close of the comment period in developing final regulations. Comments received after the end of the comment period will be considered if possible, but their consideration cannot be assured. The Department will not accept public comments accompanied by a request that a part or all of the material be treated confidentially because of its business proprietary nature or for any other reason. The Department will return such comments and materials to the persons submitting the comments and will not consider them in the development of final regulations. All public comments on these regulations will be a matter of public record and will be available for public inspection and copying. The Department requires comments be submitted in written form, which will be a matter of public record and will be available for public review and copying. The public record concerning these comments will be maintained in the Bureau of Export Administration, Office of Administration, U.S. Department of Commerce, Room 6883, 14th and Constitution Avenue, NW, Washington, DC 20230; (202) 482-0637. This component does not maintain a separate public inspection facility. Requesters should first view BXA's FOIA website (which can be reached through http:// www.bxa.doc.gov/foia). If the records sought cannot be located at this site, or if the requester does not have access to a computer, please call the phone number above for assistance. List of Subjects in 15 CFR Parts 738 and 742 Exports, Foreign trade. Dated: December 14, 2001. James J. Jochum, Assistant Secretary for Export Administration. [FR Doc. 01-31322 Filed 12-19-01; 8:45 am] BILLING CODE 3510-33-P ---------------------------------------------------------------------- Export Controls: Regulatory Change Needed to Comply with Missile Technology Licensing Requirements (31-MAY-01, GAO-01-530). The United States and several major trading partners created the Missile Technology Control Regime, to control the spread of missile technology in 1987. To carry out the U.S. commitment to the agreement, Congress passed the National Defense Authorization Act of Fiscal Year 1991, which amended two U.S. export control statutes: the Export Administration Act and the Arms Export Control Act. Two federal agencies, the Department of Commerce and the Department of State, are responsible for implementing the regulations for controlling missile technology exports. This report discusses whether the regulations for controlling the export of Missile Technology Control Regime items (1) are consistent with U.S. law and (2) provide a consistent U.S. policy on the control of missile technology. GAO found that Commerce's export regulations are inconsistent with the National Defense Authorization Act of Fiscal Year 1991 amendment to the Export Administration Act. That amendment requires an individual export license for all controlled dual-use missile equipment and technology to all countries. However, Commerce's regulations do not require licenses for the export of controlled missile equipment and technology to Canada. Commerce did not cite any section of this statute or its legislative history to justify the inconsistency between its regulations and the statutory requirement. GAO found that State's export regulations are consistent with the National Defense Authorization Act of Fiscal Year 1991 amendment to the Arms Export Control Act. The inconsistency between Commerce's regulatory exemption and the Export Administration Act along with different interpretations by Commerce and State of congressional intent, contributes to a divided U.S. government policy toward Canada and toward missile proliferation. -------------------------Indexing Terms------------------------- REPORTNUM: GAO-01-530 ACCNO: A00931 TITLE: Export Controls: Regulatory Change Needed to Comply with Missile Technology Licensing Requirements DATE: 05/31/2001 SUBJECT: Dual-use technologies Export regulation Exporting Foreign policies Foreign trade agreements Licenses Missiles Canada ****************************************************************** ** This file contains an ASCII representation of the text of a ** ** GAO Testimony. ** ** ** ** No attempt has been made to display graphic images, although ** ** figure captions are reproduced. Tables are included, but ** ** may not resemble those in the printed version. ** ** ** ** Please see the PDF (Portable Document Format) file, when ** ** available, for a complete electronic file of the printed ** ** document's contents. ** ** ** ****************************************************************** GAO-01-530 Report to the Chairman and Ranking Member, Subcommittee on Readiness and Management Support, Committee on Armed Services, U. S. Senate United States General Accounting Office GAO May 2001 EXPORT CONTROLS Regulatory Change Needed to Comply with Missile Technology Licensing Requirements GAO- 01- 530 Page 1 GAO- 01- 530 Export Controls May 31, 2001 The Honorable James Inhofe Chairman The Honorable Daniel Akaka Ranking Member Subcommittee on Readiness and Management Support Committee on Armed Services United States Senate Concerned about missile proliferation, the United States and several major trading partners in 1987 created an international voluntary agreement, the Missile Technology Control Regime, to control the spread of missiles and their related technologies. Congress passed the National Defense Authorization Act for Fiscal Year 1991 to fulfill the U. S. government?s Missile Technology Control Regime commitments. 1 This act amended two governing U. S. export control statutes: the Export Administration Act of 1979, as amended, which regulates the export of dual- use items (those having both military and civilian applications), and the Arms Export Control Act, as amended, which regulates the export of military items. The Department of Commerce licenses most dual- use items, while the Department of State licenses military items. Congress is currently considering the passage of a new Export Administration Act because the current statute is set to expire in August 2001. 2 Given the current interest in export controls and in missile technology proliferation, you asked us to determine whether regulations for controlling the export of Missile Technology Control Regime items (1) are consistent with U. S. law and (2) provide a consistent U. S. policy on the control of missile technology. 1 P. L. 101- 510, Nov. 5, 1990. 2 The Export Administration Act of 2001, Senate Bill 149. United States General Accounting Office Washington, DC 20548 Page 2 GAO- 01- 530 Export Controls The Department of Commerce?s export regulations are not consistent with the National Defense Authorization Act for Fiscal Year 1991 amendment to the Export Administration Act for missile technology controls. That amendment requires an individual export license for all controlled dualuse missile equipment and technology to all countries. However, the Department of Commerce?s regulations do not require licenses for the export of controlled missile equipment and technology to Canada. The Department of Commerce did not cite any section of this statute or its legislative history to justify the inconsistency between its regulations and the statutory requirement. Additionally, we found nothing in the legislative history to indicate that Congress intended to allow controlled missile items to be exempt from licensing requirements. According to Department of Commerce officials, Congress is aware of this exemption through an annual report on foreign policy export controls and, to their knowledge, Congress never intended to end the regulatory exemption for missile- related exports to Canada when the law was passed. The Department of State?s export regulations are consistent with the National Defense Authorization Act for Fiscal Year 1991 amendment to the Arms Export Control Act. While that amendment did not mandate that the Department of State require licenses for missile technology items, other provisions of the Arms Export Control Act provide the Department discretionary authority to require licenses or provide exemptions. In implementing the acts as they relate to controlled missile technology, both the Departments of Commerce and State were initially consistent with each other by continuing the long- standing policy of exempting controlled items from licensing requirements if those items were being exported to Canada for use in Canada. This consistent policy toward Canada changed in April 1999 when the Department of State began requiring a license for controlled missile technology, as well as other military items, exported to Canada. The Department of State changed its policy because of concerns about the unauthorized re- export of certain items from Canada to countries of concern. In addition to its concerns about re- exported items, Department of State officials cited, among other reasons, the provisions in the Export Administration Act as evidence that Congress did not intend any licensing exemptions for any controlled missile technology items and technologies. Because of the inconsistency between the Department of Commerce?s regulatory exemption and the Export Administration Act, we recommended that the Department of Commerce revise its regulations or seek a statutory change to specifically allow for licensing exemptions. Results in Brief Page 3 GAO- 01- 530 Export Controls Since the Department of Commerce did not agree with our recommendation, we have added a matter for congressional consideration. In 1987, the United States and six allies founded the Missile Technology Control Regime (MTCR). 3 The Regime seeks to limit the proliferation of rocket and unmanned air vehicle systems capable of delivering nuclear, biological, and chemical weapons of mass destruction and their associated equipment and technology. The Regime is a voluntary agreement among member countries with a shared interest in controlling missile proliferation. Members agree to adhere to a common export policy for items and technologies that are specified in an annex to the agreement, which is updated periodically. These MTCR items range from complete missile systems to missile- related components that may also have civil applications. Member countries also agree to control these items and technologies in accordance with their national legislation. The United States fulfills its MTCR commitments through its existing export control system and governing statutes. The U. S. export control system, and therefore the U. S. implementation of the Regime?s controls, is divided primarily between two departments. The Department of Commerce, under the authority of the Export Administration Act of 1979 controls exports of most dual- use items and technologies. 4 The Department of Commerce controls dual- use items through the Export Administration Regulations and identifies those items on the Commerce Control List. 5 The Department of State, under the authority of the Arms Export Control Act, controls exports of munitions items and technologies, which are those designed, developed, configured, adapted, or modified solely for military applications. 6 The munitions items under the Department of State?s licensing jurisdiction are controlled through the International Traffic in Arms Regulations and identified on the U. S. 3 The other founding members of the Regime are Canada, France, Germany, Italy, Japan, and the United Kingdom. Since 1987, 26 additional countries have become members of the Regime, bringing the total number of member countries to 33. 4 50 U. S. C. App. secs. 2401 et seq. 5 15 C. F. R. secs. 730- 774. 6 22 U. S. C. secs. 2751 et seq. Background Page 4 GAO- 01- 530 Export Controls Munitions List, which the Department of State develops with the concurrence of the Department of Defense. 7 The National Defense Authorization Act for Fiscal Year 1991 amended the Export Administration Act of 1979 to require an individual validated license for any export of dual- use MTCR goods or technology to any country. The Department of Commerce implemented the statutory requirements through its Export Administration Regulations by including MTCR annex items in the Commerce Control List and generally requiring a license to export or re- export those items and technologies related to the design, development, production, or use of missiles. However, these regulations provide an exemption to the statutory licensing requirement for MTCR annex items and technologies exported to Canada. 8 Department of Commerce officials did not cite any section of the statute or its legislative history to justify the inconsistency between the statutory requirements and the Department?s regulations. In addition, we found nothing in the amended act or its legislative history to suggest that Congress intended to exempt MTCR items exported to Canada from licensing requirements. Department officials said the license exemption predated the amendment and they assumed Congress did not intend to end the licensing exemption. They told us the Department annually reports to Congress on its foreign policy export controls, including the exemption for missile technology exports to Canada, and Congress has not objected to the continuation of this export exemption. The National Defense Authorization Act for Fiscal Year 1991, as it applied to the Arms Export Control Act, did not mandate that the Department of State require licenses for missile technology items. The Arms Export Control Act, however, provides the Department of State with discretionary authority to determine which items, including missile technology items, require a license, and to create licensing exemptions in its regulations. Because the Department of State has authority to require licenses or to provide exemptions, the Department?s regulations are consistent with the National Defense Authorization Act for Fiscal Year 1991. 7 22 C. F. R. secs. 120- 130. 8 15 C. F. R. sec. 742. 5( a)( 1) and Supplement No. 1 to part 738 of the Export Administration Regulations. Commerce and State Differ in Their Regulatory Consistency With Export Statutes Page 5 GAO- 01- 530 Export Controls Although the Departments of Commerce and State initially had a consistent policy toward exempting MTCR items exported to Canada from licensing, the Departments? policies now differ. The Department of Commerce continues to exempt MTCR items going to Canada, whereas the Department of State currently requires an export license for MTCR items to Canada. According to Department of Commerce officials, the current regulatory exemption for MTCR items exported to Canada is consistent with the U. S. government?s long- standing policy to encourage economic cooperation with Canada. Specifically, the Export Administration Regulations provided an export exemption for Canada prior to the amendment of the Export Administration Act and this exemption has been continued as a matter of policy. Furthermore, Department officials said that after passage of the amendment in 1990, an interagency group discussed whether Congress intended to eliminate the Canadian exemption but did not reach consensus. Prior to April 1999, the Department of State?s regulations also allowed most items on the U. S. Munitions List, including MTCR items, to be exported to Canada for use in Canada without a license. However, the Department of State became concerned about U. S. defense equipment and technology being re- exported from Canada to destinations such as Iran. The Department of State, therefore, issued new regulations in April 1999 that limited the scope of its licensing exemption for exports to Canada. 9 The revised regulations required a license for all MTCR munitions items, as well as other munitions items, to be exported to Canada. 10 As part of its justification for its regulatory revision, Department of State officials cited the provisions in the amended Export Administration Act as evidence that Congress did not intend any licensing exemptions for MTCR dual- use items and technologies. Based on this statutory language, the Department of State concluded that Congress must have intended that licenses be required not only for dual- use items but also for the more sensitive items falling under the Department of State?s jurisdiction. 9 64 Federal Register 17531, Apr. 12, 1999. 10 In October 2000, the Canadian government passed legislative changes followed by regulatory changes in January 2001 to strengthen its defense export system. When it made these changes, the Canadian government requested that the Department of State revise its regulations to exempt MTCR items from U. S. export licensing requirements for Canada. While the Department of State has issued new regulations that are effective May 30, 2001, the Department has not restored the MTCR exemption for Canada. Current Commerce and State Policies on MTCR Export Licensing Requirements Differ Page 6 GAO- 01- 530 Export Controls Because the Department of Commerce?s regulations are inconsistent with the amended Export Administration Act, we recommend that the Secretary of Commerce revise the Export Administration Regulations to comply with the MTCR export licensing requirements contained in the National Defense Authorization Act for Fiscal Year 1991 or seek a statutory change from Congress to specifically permit MTCR items to be exempted from licensing requirements. If the Secretary of Commerce decides to seek a statutory change, he should revise the Export Administration Regulations to comply with the current statute until such time as a statutory change occurs. Congress may wish to instruct the Secretary of Commerce on the need to bring the Department?s regulations into compliance with the law until such time as Congress has determined that dual- use MTCR items may be exempt from licensing requirements. In written comments on a draft of this report, the Department of Commerce said it will consult with other departments and its congressional authorizing committees on the utility of revising its regulations in light of pending legislation. However, neither consultation with other departments nor the consideration of pending legislation changes the basis for our recommendation that the current law requires licenses for dual- use MTCR exports to all countries. Since the Department of Commerce does not agree with our recommendation, we have added a matter for congressional consideration. The Department of Commerce?s comments are reprinted in appendix I, along with our evaluation of them. The Department of State did not provide formal written comments on a draft of this report but provided technical comments, which we incorporated as appropriate. To determine the consistency between statutory and regulatory language concerning MTCR exports, we compared the MTCR provisions as contained in the National Defense Authorization Act for Fiscal Year 1991 with the Department of Commerce?s Export Administration Regulations and the Department of State?s International Traffic in Arms Regulations. We also requested and received a written response from the Department of Commerce to explain its regulatory exemption and then interviewed lawyers and other officials about their interpretation of the statutory Recommendation for Executive Action Matter for Congressional Consideration Agency Comments Scope and Methodology Page 7 GAO- 01- 530 Export Controls requirements. In addition, we reviewed the legislative history of the MTCR provisions in the National Defense Authorization Act for Fiscal Year 1991. To determine whether the regulations for controlling the export of MTCR items provide a consistent U. S. policy on the control of missile technology, we discussed with Departments of Commerce and State officials their regulations implementing the MTCR. We also reviewed the Department of State?s regulatory revisions and supporting documentation. We performed our review from November 2000 through March 2001 in accordance with generally accepted government auditing standards. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution of this report until 30 days after its issuance. At that time, we will send copies to Senator Phil Gramm, Chairman, Committee on Banking, Housing, and Urban Affairs; Senator Paul Sarbanes, Ranking Member, Committee on Banking, Housing, and Urban Affairs; Senator Jesse Helms, Chairman, Committee on Foreign Relations; Senator Joseph Biden, Ranking Member, Committee on Foreign Relations; Representative Henry Hyde, Chairman, Committee on International Relations; and Representative Tom Lantos, Ranking Minority Member, Committee on International Relations. We will also send copies to the Honorable Colin L. Powell, Secretary of State; the Honorable Donald L. Evans, Secretary of Commerce; and the Honorable Mitchell E. Daniels, Jr., Director, Office of Management and Budget. If you or your staff have questions concerning this report, please contact me at (202) 512- 4841 or John Van Schaik from our Office of General Counsel at (202) 512- 8184. Others making key contributions to this report were Thomas J. Denomme, Anne- Marie Lasowski, and Johana R. Ayers. Katherine V. Schinasi Director Acquisition and Sourcing Management Team Appendix I: Comments from the Department of Commerce Page 8 GAO- 01- 530 Export Controls Appendix I: Comments from the Department of Commerce Note: GAO comments supplementing those in the report text appear at the end of this appendix. Appendix I: Comments from the Department of Commerce Page 9 GAO- 01- 530 Export Controls See comment 4. See comment 3. See comment 2. See comment 1. Appendix I: Comments from the Department of Commerce Page 10 GAO- 01- 530 Export Controls Appendix I: Comments from the Department of Commerce Page 11 GAO- 01- 530 Export Controls The following are GAO?s comments on the Department of Commerce?s letter dated May 15, 2001. 1. According to the Department of Commerce, its Canadian exemption is not inconsistent with the Missile Technology Control Regime (MTCR) Guidelines. Nevertheless, this exemption is inconsistent with the current U. S. law governing exports of MTCR dual- use items. 2. As stated in our report, the Department said that it had not revised its regulations when the National Defense Authorization Act for Fiscal Year 1991 was enacted because there was no interagency consensus to do so. However, a lack of interagency consensus does not justify the inconsistency between the Department?s regulations and the law. Furthermore, the Department of Commerce was unable to provide documentation or an explanation as to why interagency consensus was not achieved. 3. While there have been extensive discussions and multiple bills to reauthorize the Export Administration Act over the past several years, there have been no changes to the current governing statute that requires export licenses for all MTCR dual- use items to all countries. 4. The question of economic impact may be an appropriate part of the debate on requiring licenses. However, it does not affect the fact that current law requires licenses for dual- use MTCR exports to all countries. Furthermore, in its foreign policy report to Congress, the Department of Commerce stated that the MTCR has limited economic impact on the majority of U. S. exports. GAO Comments (120053) ----------------------------------------------------------------------------