MK Data Services

Dr. Paul Freedenberg
Chairman, MK Technology 

Export controls are one of the principal means we use to defend our nation’s high technology advantage over potential adversaries.  It has been 22 years since the last major re-write of the Export Administration Act (“EAA”), the legislation that provides the basic authority for the President to control exports, and in that time our practices have become ineffective and redundant. If we do not reform and update our export control system, we will not only lose competitiveness internationally, we will also endanger our national security.

During the Cold War, working with our allies, export controls successfully isolated the Soviet Union and denied or at least delayed its acquisition of the high technology necessary to strengthen its military.

However, with the end of the Cold War, there is no longer unanimity among the Western allies about the nature of the threats we face. Nor is there any longer a U.S. veto that can be wielded when we disagree with our allies. Our current export control forum, the Wassenaar Group, is mostly concerned with keeping dangerous technology out of the hands of terrorists and rogue states.  The East-West targeting has been replaced with an emphasis on North-South conflict.

However, many potential adversaries do not fit the profile of the Wassenaar Group.  For example, China and Russia are certainly not rogue states. Nevertheless, the U.S. Government retains a restrictive licensing policy towards them. Russia is still not one of the top markets for U.S. exports, but China is, and the U.S. Government is consistently more limiting than its European allies with regard to licenses for products and technologies destined for markets like China.  Delays combined with foreign availability of products have meant lost business for U.S. firms and trade frictions with China. In a world with multiple sources of technology, it is almost impossible to limit the technology flow into China. The support of all high tech countries is necessary in today's world, and the U.S. Government's shift from a multilateral to a unilateral approach has not denied the Chinese key high technology products.

To take but one example, China is the largest and fastest growing machine tool market in the world. The U.S. still tightly licenses five-axis machine tools, because they are considered to be the most sophisticated. These licenses can take from six months to a year to gain government approval.  The Swiss, Germans, and Italians license products with identical capabilities in weeks.  Over the past decade the U.S. has lost 50 percent of its share in this fast-gowning market. At the same time, the domestic U.S. market has shrunk by 50 percent.

Similar problems occur in semiconductor manufacturing equipment and scientific instruments. Without the cooperation -- indeed, the enthusiastic support -- of our allies, the current export control system does not work.  It costs American jobs and does not accomplish its objectives.

We may view China as a potential threat, but many of our allies do not.  We may seek to isolate it from the highest levels of technology, but our allies are ready to supply most of the products and technology that are requested. 

We do have reasons to limit the export of our technology. There are nations who mean us harm. A strengthening of their power could adversely affect the strategic balance. So, the issue is, then, how we can have a working export control system that also receives multilateral support?

President Obama has made reform of the export control system a priority in his agenda.  The Obama Administration has declared that it intends to undertake a dramatic reorganization of the export control structure, and it has just issued a number of regulatory reforms regarding the way in which we administer export controls.  These reforms simplify the organization of export controls and provide a better definition which items belong on the military-oriented Munitions List and which items ought to be treated as dual-use (or principally civilian) technologies.  The new regulations are the first fruits of a review process that has been taking place at the President's request over the past year.  The ultimate objective is to improve national security by speeding up licensing time and shortening the list of controlled products that require an individual validated license.  This is the strategy of "higher fences around fewer products", which should lead to a system that is both more efficient and more capable of the protecting the items that remain under the purview of the export control system.

These reforms are a good first step.  Export controls can be made more relevant and effective if they are made more targeted and administered more efficiently.  It also makes sense to consolidate the IT system and coordinate enforcement across agencies, as the President proposes.  But more needs to be done, either by the Congress, or the Congress in concert with the Administration:

1.    We need a better defined purpose for export controls – in harmony with our allies if possible.  China is a particular problem.  We currently have what amounts to unilateral controls to China that accomplish nothing strategically but do antagonize the Chinese and deprive US companies of a rich market for their high tech goods.  Either the controls have to be made multilateral, or they need to be adjusted to the point where they are more realistic.

2.    We need to clarify to our allies why it is in their interest to support export controls, even if individual countries might prefer not to.  Japan and Australia recognize the potential strategic threat that China poses, but the Europeans tend to see China simply and overwhelmingly as a rich market – period.  It will be a tall order to change that perception, but our China policy will be ineffectual otherwise.

3.    We need to broaden the list of countries to which we have few or no controls.  Today we waste valuable time and resources licensing goods and technology to our closest allies.  The currently pending Australian and United Kingdom defense cooperation treaties would go a long way toward accomplishing the goal of refining and targeting our licensing system, yet they have been languishing for years awaiting Congressional approval.

4.    There must be a major restructuring of the ways in which we conduct export controls.  Today there are seemingly endless inter-agency debates and needless delays before many licenses are approved.  A major goal of the Obama Administration reform effort is to clarify the control definitions and the jurisdictional lines between control agencies.  It is a worthwhile undertaking.  For my part, I do not believe that we need a single agency to accomplish export efficiency and focus.  We do, however, need to have clear lines and definitions among the agencies.  Moreover, Congress does not seem to be in a mood to grant broad powers to the President to reorganize the entire system, but I am convinced that Congress would applaud a system that was reformed to the point where licenses moved swiftly through a bureaucracy that was streamlined and clear in its lines of jurisdiction.

Our national security and our economic interests demand that we treat export control reform as a priority.  We cannot afford to go still more years without addressing this issue.  But the question remains whether there is the political will to complete the job.

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Paul Freedenberg served as Under Secretary of Commerce for Export Administration under President Reagan and is Chairman of MK Technology in Washington, D.C.