Export Control Blog

President's IEEPA Authority Upheld

From JURIST:

The US Second Circuit Court of Appeals [official website] Thursday upheld [opinion text, PDF] the constitutional authority of the US president to regulate financial transactions with foreign countries involving the United States. The court rejected a claim by a Jordanian man, Osameh Al Wahaidy [profile], that former President George H.W. Bush [official profile] improperly invoked the International Emergency Economic Powers Act [PDF] to enforce a series of executive orders after Iraq invaded Kuwait in 1990. The orders made it illegal for a US person to transfer funds [JURIST report] to anyone in Iraq. Wahaidy argued that the power to create new criminal offenses belongs to Congress alone. In 2003, Wahaidy pleaded guilty to willfully trying to violate and evade executive orders by sending $100,000 to Iraq [US DOJ press release] in October and November 1999 and in February 2000.

DDTC Investigating Israeli Use of US Cluster Bombs

David S. Cloud reports in today's New York Times that DDTC (which Cloud refers to by its previous moniker) is looking into Israel's use of cluster munitions in Lebanon. In doing so he understates the importance of the Arms Export Control Act by calling it an "agreement" which it is not. AECA is statutory law, duly enacted by Congress and approved by the president.

Whether Israel complies with the AECA is not a new issue.

Summarizing the BIS Public Meeting on Changes to China Controls

Fortunately for those of us who didn't attend a BIS public meeting on the proposed China military end-use rule, ECB reader Ladyx did and she's been kind enough to provide a concise write-up for everyone's benefit in the comments section, which I'm reproducing here:

I attended one of the meetings.  Specific Encryption Controls were not discussed.  The main topics of discussions were:

1.  The new reg would become a General Prohibition and the ECCNs listed in Supp#2, thus exempting EAR99 items.

2. How the VEU list was going to gathered - primarily from prior licenses issued from the BIS. The VEU list was also going to be written into the EAR under a supplement. A Chinese entity could apply themselves. A US entity could "sponsor" a Chinese entity via the advisory opinion method. 30 Day processing time for new applicants. The VEU would undergo an annual review.

3.  Current commodities covered under CIV could use the VEU list as supporting documentation.

4.  CBP training.

5.  The AES ECCN field does not accommodate all digits of the suffixes.

6.  Early 2007 implementation with an undefined grace period.

7.  How to handle replacement parts and service providers. 

8.  The "official" China response to this proposal.

All said and done in 45 minutes.....all Q&A.

Thanks Ladyx!

If you've got something to add, don't keep it inside, just click on Comments below and share your thoughts with the now-quite-considerable number of people who visit this blog each day.

Export, etc. 8/25/06

• You've heard of Driving While Black, now there's Using PayPal While Mohammed
• Boeing to model 767 tanker production ITAR compliance program on that of the 737-based P-8 Multimission Maritime Aircraft (MMA) (if they get the contract of course)
• "With night vision you can see how the genie escaped from the bottle"
• Treasury to name and shame banks holding North Korean assets?
• Guess what the Russian papers are saying about the latest US sanctions?
• Shining a light on the nuclear black market
• Aussies and Euros jar jar on MANPADS
• US sanctions ground Chinese-Singaporean joint venture Great Wall Airlines
• New York man charged under IEEPA for relaying Hezbollah's Al-Manar TV satellite broadcasts
• Oregon company crows about BIS warning letter

Pack Your Bags for Iran, Young Man (But Leave Your BlackBerry at Home)

There's a bit of good news this week for Americans working in, on or with Iran for the UN, World Bank, IMF, IAEA, ILO or WHO. OFAC amended the Iranian Transactions Regulations on Tuesday to permit "the performance of transactions for the conduct of the official business" of those IGOs by said Americans. They'll have to pack light though, because they're not allowed to export goodies "such as laptops, personal computers, cell phones, personal digital assistants and other wireless handheld devices/blackberries, and other similar items" without a separate license.

State's Summertime Slowdown

In the perennial battle between the Directorate of Defense Trade Controls and molasses, the syrupy byproduct has pulled ahead once again. License processing times have been on an upward trend for some time now, but in recent months the situation has only gotten worse. As of June, the last month for which numbers are available, it took DDTC a median time of 26 days to turn around a non-staffed application. For staffed applications, 66 days was the median. A staffed application is one which is referred out to other agencies for their opinions, so naturally they take longer. (These are the statistics for applications made on paper; D-Trade is quicker, but only about a fifth of applications are submitted electronically.)

Based on these website figures and a related 2005 GAO report (pdf), the directorate's overall processing times now appear to be the slowest since at least 1999. (ECB previously discussed the GAO report here.)

Wait, it gets worse. We haven't even discussed agreements yet. It's not clear to me if either the DDTC figures or the GAO report include agreements in their definition of "licenses". But what is clear -- from my own experiences as well as conversations with exporters -- is that agreement processing has utterly gone off the rails. Four, five, even six month delays are now entirely common. And we're not talking about SME or anything else especially sexy here.

Not to mix transportation metaphors, but the painful slowdown in agreement processing at State reminds me of a car trip I took last year in Southern California. The journey taught me that there are three ways to measure the time it takes to do something:

1. How long it should take
2. How long you think it will take
3. How long it actually takes

To understand what I mean, allow me to set the stage. For those of you familiar with the area, I had to get from Irvine to Sherman Oaks (for the uninitiated, here's a map of my approximate route). In theory, traveling at posted highway speeds, it should take about an hour to cover the sixty mile distance. Sort of like how it should only really take DDTC a month at most to review your typical proposed TAA or MLA. But I knew enough to appreciate that I was delving into the most notoriously awful and unpredictable traffic in the country. So I figured maybe it would take twice as long as it should -- perhaps two hours. Not so different from how everyone who's ever dealt with the ITAR bureaucracy realizes that it generally takes DDTC two or three months to approve an agreement.

Did I mention that I left Irvine at 4pm on a Friday?

By the time I finally arrived in Sherman Oaks, exhausted and with a dead cellphone battery. more than four hours had passed. That's how long it actually took to cover those sixty miles. How long will it take for the government to sign off on your agreement? I can't tell you for sure. Guess you'll just have to wait. Like everyone else.

Government to Industry: Strong Encryption Only to China, Please

It's been fully 15 months since this blog first reported that BIS was contemplating additional restrictions on exports to the Chinese military. Since then, we and others have spilled a generous amount of digital ink on the subject of the proposed China military end-use rule. (Minor digression -- as late as October of last year, Bureau of Industry and Security (BIS) officials were talking about a "Conventional Catch-All" proposal and disavowing any specific connection to China. Not long after Update 2005, they dropped the pretense.)

Now the government seems to be picking up the pace, formally publishing its proposal last month and holding four public meetings on it over the past week and a half. There's still ample time to comment on their regulation (until November 3), but many companies are now considering how the rule, as written, would impact their businesses and compliance programs.

For those of you who aren't yet familiar with the general outline of the BIS proposal, here's the one sentence summary -- the proposed rule would requires exporters/reexporters to seek a license from BIS to export/reexport items classified under certain ECCNs to China if they know the items are intended for a military end-use. There's certainly more to it than that, which is why you should read the whole thing, but that's the idea in a nutshell.

Today let's focus on how the new regulation could change the way US companies export encryption products to China. Frankly, this proposal's treatment of cryptography is very strange, though probably unintentionally so. It seems to leave high-strength encryption products eligible for License Exception ENC's unrestricted flavor untouched. 5A002 and 5D002 aren't on the draft list (intended for a new Supplement No. 2 to Part 744 of the EAR) of items destined to be subject to the military end-use license requirement. (Anything eligible only for ENC Restricted would probably require a license for export to China for a military end-use anyway since the consignee would most likely be considered a government end-user. If you're not versed in US export controls on encryption, take a gander at the published BIS guidance).

Fair enough. It's not like exporters are going to complain about their ECCNs being left off the list of stuff about to get slapped with additional controls. But then things gets weird. 5A992 and 5D992 are listed in Supp. 2. Sure, much of the content of those ECCNs is carved-out, including all mass market, short range wireless, and limited functionality crypto. What's not carved out? Weak (i.e. ≤ 56-bit) non-mass market encryption. Huh? So I can continue to export ENC Unrestricted-eligible 5X002 crypto of unlimited strength for a military end-use in China, but not a weaker 5X992 version of that same product?

Looks to me like maybe BIS overlooked the intricacies of their own highly complex encryption controls. After all, a straight reading of the CCL and the Country Chart would indicate that a license is already required to export NS1-controlled 5X002 items to China...so no need to include it on the list of stuff subject to the new rule, right? Except that ENC overcomes the NS controls for 5X002 hardware and software. And China is an eligible destination under ENC. So if you make a weak non-mass market encryption product, why bother with 5X992? Just upgrade the encryption, get a review for ENC Unrestricted eligibility and export away for as many Chinese military end-uses as you like. And if your product is already approved for ENC Unrestricted, you're equally good to go.

In actuality, BIS will almost certainly clean up this contradiction before the rule goes final. My guess is that they will add the 5X002 ECCNs to Supplement No. 2 or specify limits on the use of ENC.

Would anyone who attended the public meetings care to comment? Did the BIS staff address encryption specifically?

Understatement of the Day

None of these sweeping objectives appear likely to be achieved.

That's Michael Ewing-Chow over at the International Economic Law and Policy Blog on the conditions for lifting US sanctions on Burma/Myanmar (choose one). He continues with several good questions:

1. Why then has the US seen fit to renew unilateral trade sanctions that don't work but instead counterproductively improverish the people the sanctions are purportedly aimed at liberating?
2. If this is purely a domestic public relations exercise, why has the domestic constituencies not wisened up to the ineffectiveness of such unilateral sanctions?
3. As Myanmar is a WTO member, these sanctions are obviously MFN inconsistent but can these sanctions be justified under any of the exceptions?
4. Why has Myanmar or other states not bothered with bringing a WTO claim against the US? After all, the EU and Japan brought a claim against the Massachusetts Burma Law back in 1997.
5. Bearing in mind the failure of the Helms-Burton Act, can and should any trade related influence be exerted on the two most important trading states for Myanmar - China and India?
6. If unilateral trade sanctions are not the solution, what should be done? ASEAN's "constructive engagement" has also had little effect on the junta.
7. Could a situation like Myanmar be so politically intractable to render ineffective any external effort to effect political change (short of "regime change"). If so, would it be better to focus on improving the lives of the average Myanmar person via free trade and wait in the hope that Barrington Moore's dictum "no bourgeois, no democracy" is true?

Libyan Limbo

The Washington Post would have its readers believe that it's just a handful of aging C-130s that are caught up in the sluggish retooling of US policy toward Libya, when in fact there's a lot more at stake. Which brings me to this question -- how long is it going to take to remove the EAR's anti-terrorism controls on Libya?

It's now been more than three months since President Bush decided to remove Libya from the list of state sponsors of terrorism -- the hall of shame once known as the T7 (and now numbering just five countries). Following the requisite 45 day waiting period, Libya's rescission from the list became effective on June 30.

Thinking about this another way, since the last day of June the roadblocks to amending the regulations have been bureaucratic rather than legal. Actually, it's worse than that. The mid-May decision to take Libya off the terror list and upgrade the US mission in Tripoli to full embassy status was the culmination of a lengthy effort to bring Libya in from the cold which had its beginnings all the way back in December of 2003. Since then, Commerce, State, and Treasury have orchestrated a gradual loosening of the once comprehensive US sanctions on Libya. In this context, the May announcement shouldn't have surprised anyone, least of all the export control bureaucracy.

And yet, with AT controls still in place, US companies need individual licenses to export anything on the Commerce Control List (CCL) to Libya -- a standard PC, basic software, telecom equipment, civil aircraft parts, etc. Needless to say, competitors elsewhere in the world don't face these restrictions.

But at this point, the Libya issue is no longer about policy -- that's a done deal, resolved in favor of expanded relations with Tripoli. It's about implementing the chosen policy with a sense of urgency -- a realization that with every passing day US companies lose out on export opportunities for, quite literally, no good reason.

Export, etc. 8/18/06

• A very practical and technical discussion of how to spot SDNs and other risky business partners in your databases
• Japanese authorities launch investigation into unauthorized export of "dual use" Nikon device
• Must read piece on the proliferation of missile technology
• German Green Party pushed for arms embargo on Israel
• Boeing plows ahead in venture with recently-sanctioned Russian firm
• US-Venezuela relations: rancor and trade both on the rise
• Weadon and Kalinoski take another swing at the military catch-all rule (now clearly targeted exclusively China, which was wasn't clear at the time of their last salvo)
• Another very lengthy denial order: 20 years for unlicensed export of (6A002?) thermal imaging cameras to the UAE (last week there was one last week for 50 years)
• Hong Kong's trade rep in DC says risk of diversion to PRC was "Washington's number one concern"
• Big London arms exhibition bans cluster bombs (DSEi flashback)
• Crate-ology