On March 7 , the White House took the first major steps to fundamentally overhaul controls on technology, when it notified Congress that it intends to remove military-type controls on a range of aircraft and gas turbine engines, parts and components.
These are the first fruits of a four-year effort, with more to come.
These reforms are a significant shift in national security policy, with far reaching effects for U.S. business and American workers.
When the reform initiative was kicked off in 2009, I arrived at the National Security Council as part of a small task force charged with fixing a system widely recognized as broken.
Our only instructions were to protect national security, and make the system work better. We were keenly aware that it is critically important to have a vigorous, comprehensive export-control system to prevent adversaries from getting access to things that could be used against us. But controlling too much too tightly creates national security risks also.
Problems in the system had been festering for a long time. Poorly-executed reform efforts in the 1990s lead to a political backlash that made meaningful efforts to fix glaring problems politically impossible for over a decade.
By the beginning of the Obama Administration, protections on technology had become so ascendant that they were harming national security in the name of protecting it. In 2009, Defense Secretary Robert Gates encouraged the President to pursue export control reform. He noted that our controls had become so broad that they
— Undercut our efforts to control the items that were actually critical.
— Impeded out ability to engage with allies in coalition warfare.
— And made it more difficult to support our troops in the field.
Solving these problems for the Department of Defense was sufficient justification to reform export controls. But the negative impact of excessive controls was more widespread than that. One court went so far as to call the government’s process for designating items for control as “secret law” and “the sort of tactic usually associated with totalitarian régimes.”
Restoring discipline and order to the way controls were applied became a significant goal.
Because of the way controls have been applied, in many cases it is impossible to know if a particular item is controlled without asking the government for a policy review. Loosely-applied standards for imposing controls, accompanied by as much as 20 years in prison and a $1 million fine for violations, can put companies in an untenable position.
Legal uncertainty about controls, when paired with significant penalties for guessing wrong, is not only bad government. It also pushes research, development, and production off-shore to avoid U.S. controls. This can cause irreparable harm to domestic industries that are of vital importance to national security. Poorly-designed export controls effectively bankrupted the U.S. machine tool industry, and did tremendous damage to the satellite industry, for example.
In weighing options for reform, we considered minor tweaks, but quickly realized we needed to fundamentally restructure the system. The first category that we reviewed was military vehicles. This category includes all sorts of things ranging from trucks to main battle tanks. The NSC convened a group of experts from across government, with heavy representation from the Department of Defense.
Upon exhaustive review, we concluded that an astonishing 74% of items in that category did not justify stringent military controls. It was a damning result, showing that the system was substantially out of whack. On the high end, in some cases were controlling items so tightly that it interfered with our ability to protect ourselves. On the low end, we were protecting things that were readily available anywhere and of negligible risk. It confirmed that major changes were needed.
In some cases, reform will increase controls on certain products. For many items that do not warrant stringent restrictions, however, it will lower controls. For items that are subject to licensing requirements, the system will be more streamlined and agile, and enforcement will be more nimble and informed.
To be very clear, these reforms were motivated by national-security interests, period. In designing these reforms, I cannot recall even one discussion of lowering controls for economic reasons. But it cannot be denied that these changes will lift a huge burden from industry, creating new markets for American businesses and jobs for U.S. workers.
Export control reform may not, as President Obama famously remarked in another context, “mark the point where the rise of the oceans began to slow and our planet began to heal.” But it may well mark the point where the red ink begins to recede and U.S. industry begins to hire again.
Brandt Pasco is an attorney with Kaye Scholer’s National Security, Government Contracts and Regulatory Compliance practice in Washington, DC. He can be reached at brandt.pasco@kayescholer.com.