U.S. Export Controls: What Has Changed?

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With the launch of Stratfor Worldview Enterprise, business leaders from a variety of backgrounds share their opinions on geopolitical risks and business strategies. Andrea Winn has a Masters of International Affairs, National Security and Diplomacy from the Bush School of Government and Public Service at Texas A&M University. She is the author of the third article in a three-part series on U.S. export controls. In this column, she discusses what has changed since new export control regulations were put into place.

Since the announcement of the Export Control Reform Initiative (ECRI) in 2011, the revisions have been slowly rolled out and implemented. Since the beginning of the three-phase ECRI rollout, exporters, agencies, and the system at large have experienced major changes. The changes have three overreaching themes: prioritization of business and commerce, unintended consequences, and enforcement and prosecution.

Prioritization of Business and Commerce

The ECRI developed in part from industry pressure to increase commerce and competitiveness of U.S. businesses in the international market. If other countries were selling restricted or prohibited items or selling items in countries with limited access to the U.S. market, then U.S. companies faced significant disadvantages compared to their international counterparts.

The changes moved items from International Traffic in Arms Regulations (ITAR) and the U.S. Munitions List (USML) to the Export Administration Regulations (EAR) and the Commerce Control List (CCL). This meant items controlled for military use, yet having a potential commercial use could be sold more easily, with fewer restrictions. The EAR, generally, places less burden on companies during the licensing process. Eighteen of 21 categories have already transitioned.

Categories I-III of the USML: firearms, artillery and ammunition, were delayed due to concerns from federal law enforcement agencies. They are due to be transferred this year. The ECRI responded to pressure from U.S. businesses to better compete in the international market.

Unintended Consequences

National security is often referred to as a competing interest against commerce. Export controls exist to protect U.S. items from being utilized against the United States and its national security interests. Items on the USML are heavily restricted and licensed. The United States does not want military items shipped without its knowledge.

Items on the CCL, however, have fewer restrictions. But they require more steps and due diligence. The order of review, which companies are entirely responsible for following to ensure compliance, for the USML is a seven-step process. In contrast, the order of review for the CCL is a twelve-step process, with several sub-components to each step. Even though it is supposed to make more items easier to sell, companies must perform due diligence to ensure these items will not later threaten the United States or its security interests.

These steps include:

Complying with restrictions regarding the destination country, company, or its leaders, as well as sanctions that could constrict the shipments;

Ensuring the end use of the item is not misrepresented;

Making certain licenses and exceptions follow the restrictions for the item the exporter wants to ship. 

These steps assist in balancing commercial and national security interests. However, these procedures place an immense burden on companies to protect national security interests. Though restrictive, the USML and ITAR are comparatively straightforward. The new, post-ECRI system almost makes it harder for companies to ship their products. It also creates more risk of mistakes due to misunderstandings or confusion over the regulations.

National security is often referred to as a competing interest against commerce.

Enforcement and Prosecution

Enforcement and prosecution of violations remain lingering issues. Prosecutions of export control violations remain very rare. Of 402 violations documented by the Department of Justice between 2008-2018, only two cases were EAR violations. By comparison, there were 94 ITAR related violations and 100 IEEPA sanctions violations.

This is a striking difference. And it reinforces the difficulty of enforcing the changes and punishing companies which circumvent the regulations. There are several departments which have various enforcement capabilities, including the departments of Homeland Security, Commerce, and Justice. With the transition of an enormous number of items from the USML under the Department of State to the CCL under the Department of Commerce, the Bureau of Industry and Security (BIS) now has an overbearing responsibility to enforce, with little change to the number of personnel to do so. 

The number of agents overseas amounts to fewer than one per country; there are approximately 125 officers in the BIS enforcement branch, making enforcement and investigations overseas extremely difficult. The increase in responsibilities only makes this job more difficult.

Conclusion

In summary, since 2011, the export control regime has changed, evolved, and adapted. As the changes are integrated, departments, companies, individuals, and the international system have reacted. Some of the overarching impact themes are:

the prioritization of business and commerce

the unintended consequences for companies

enforcement and prosecution

While there are more changes and subcomponents of each of these issues, this list captures the most significant changes for businesses as well as the U.S. agency departments that have dealt with implementing and integrating the regulations for the export control regime.