Regulatory: The uncertain future of export control reform

The Obama administration plans to restructure and simplify the U.S. export control system, but Congressional deadlock could stand in the way

In spring 2010, the Obama administration announced a comprehensive plan to restructure and simplify the U.S. export control system to both strengthen national security and to facilitate legitimate exports. Given the complexity of the export control laws and the number of agencies involved, the administration set forth ambitious goals to restructure the system, including the following:

  1. A single control list that would control fewer but higher-risk items
  2. A single licensing agency
  3. A single enforcement agency
  4. A single IT infrastructure to process export licenses in a unified manner

In the last two years, the administration has made admirable, but incremental progress toward these objectives, especially in the area of reforming the export control lists and encouraging greater interagency coordination on enforcement. However, it is uncertain whether the Obama administration (or the next administration) will be able to complete this effort. Full implementation of the administration’s reform objectives requires legislative change, which will be difficult to achieve in the current political environment.

In addition, with the implementation of certain reforms, companies will need to institute more complex internal control systems. Companies should closely monitor export control reform developments and how these efforts may impact their activities.

A single control list

There has been some progress toward implementing a single control list. The primary existing control lists are the U.S. Munitions List (USML), a list of defense-related items administrated by the State Department, and the Commerce Control List (CCL), a list of commercial items that have potential military applications administered by the Commerce Department. In 2010, the administration developed a methodology for restructuring the two control lists to be more objective and consistent. In 2011 and 2012, the Commerce and State Departments proposed rules to migrate certain categories of items from the USML to the CCL, which is intended to result in less stringent regulation of these items under the Commerce Department regulations. According to administration officials, the migration of the category for aircraft and related parts is near finalization, and the migration process for vessels and submersibles, vehicles, aircraft engines, protective equipment and shelters, explosives, training equipment and auxiliary equipment is underway.

A State Department official has indicated that the final rules migrating a number of these categories to the CCL are expected to be issued by the end of 2012. To that end, the Commerce and State Departments have proposed transition plans to manage licensing issues arising from the transfer of military items to the CCL, including the handling of existing licenses and the application of Commerce Department license exceptions.

Export control enforcement

Progress also has been made with regard to export control enforcement. Legislation in 2010 harmonized the different maximum export control criminal penalties found in four different statutes. The Export Enforcement Coordination Center opened in March and will be responsible for enhanced information sharing and coordination on export control matters among federal law enforcement agencies and the intelligence community.

Single information technology system

The administration has taken steps to move toward a single IT system, including selecting a single database for licensing purposes. The State Department is in the final stages of moving to this system, and the Department of Commerce is expected to implement the system by the end of 2012. A single IT system for Commerce and State Department licenses is expected to help streamline the licensing process.

Single license agency

There has been less progress on moving to a single licensing agency. The existing system involves three primary agencies: the Departments of State, Commerce and Treasury, each with its own license application processes. The three departments currently are developing a single license application portal for companies to file and receive all licenses. The administration also opened the Information Triage Unit in March to share information and intelligence among the licensing agencies. Despite these steps, consolidation of the licensing function in a single agency is not likely to occur in the near future, as such reorganization would require legislation by Congress.

Conclusion

While the administration has made progress on various export control reform efforts, it remains to be seen whether these efforts can be completed in the current political environment. Consolidating the USML and CCL into a single control list and establishing a single licensing and enforcement agency will require Congressional legislation. However, there are divergent viewpoints in Congress on export control reform with conflicting legislation currently being considered. For instance, some legislation would retain the current bifurcated system and impose greater controls on exports. In light of the upcoming election and unclear priorities of the next Congress, the original goals of export control reform might not be achieved. Indeed, the partial implementation of export control reform may lead to greater confusion and complexity.

Contributing Author

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Ajay Kuntamukkala

Ajay Kuntamukkala is a partner in the Washington, D.C. office of Hogan Lovells. He assists clients with a range of regulatory and policy matters involving...

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