U.S. Government Announces Major Export Control Reform Initiative

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U.S. Government Announces Major Export Control Reform Initiative

On April 20, Defense Secretary Gates presented the Administration’s sweeping proposal for reforming U.S. export controls. President Obama had announced a review of the dual-use and munitions control systems last fall and Gates’ speech represents the first concrete recommendations from this review. This is a Presidential level initiative operating in parallel to the recently announced National Export Initiative aimed at doubling U.S. exports over the next five years. The export control reform proposal is an ambitious plan that holds the potential for significant improvements to the U.S. export control system and enhanced protection of national security.

The plan has four key elements. These elements are the creation of a:

    1. Single control list

    2. Single licensing agency

    3. Single enforcement coordination agency

    4. Single IT infrastructure

The Administration proposes to pursue this plan in three phases. The first phase involves establishing new control criteria to screen items, restructuring the lists into a tiered system with cascading levels of controls, and harmonizing licensing processes and information technology systems across agencies. These activities are moving forward quickly and the Administration hopes to complete these actions by the fall. The third phase involves creating a single licensing agency and a single enforcement coordination agency. These goals would require congressional action and Secretary Gates expressed his hope that it could be accomplished this year.

Secretary Gates and other Administration officials have emphasized that the purpose of this initiative is to enhance national security given widespread agreement that the current system is harming U.S. interests since it was created in the Cold War era and has not been adapted to meet current threats. Gates noted that several previous Defense Secretaries from both parties have expressed frustration with the system and he cited examples of problems caused in working with allies in the field and with other priorities. In addition to numerous other reports, a recent National Intelligence Estimate found that the current export control system poses a threat to U.S. national security.

Public reaction was generally positive and many in industry expressed support for the direction outlined by the Administration. Many viewed the speech as a watershed moment of top-level Administration support for a sweeping and much-needed overhaul of the system. At the same time, the reform effort is an ambitious undertaking and there is skepticism that it can be accomplished this year. Much of the success will depend on the final details for many changes that still need to be negotiated.

Congressional reaction also was generally positive. We expect Congress will put its own mark on the proposal and a substantive debate on these issues will be intense and complicated. Some Hill and other observers have expressed concern about loosening controls and for any potential of advanced technologies getting in the hands of enemies as a result of changes. The prospects for moving legislation quickly are challenging given many other pressing congressional priorities and a limited calendar before the fall elections.

The Administration’s announcement tracks well with SEMI’s position that the export control system needs a fundamental overhaul. We have been lobbying the U.S. government on this need for several years and welcome the prospect of moving forward. The dual-use control list that governs semiconductor equipment and materials has not been comprehensively reviewed for well over ten years and the justification for continued control for many items remains unclear. Disparities in licensing practices among countries remain a concern and put U.S. companies at a competitive disadvantage. The Administration’s proposals hold promise for addressing these concerns, but the details will be critical and the timeline is likely to be slower than proposed.

There have been previous export control reform efforts that have failed. A key distinguishing feature now is that leadership is at the Cabinet level with support by the President and that the leading figure is a widely respected and deeply experienced national security official. While Secretary Gates noted that the plan will be met with criticism and reluctance to change, he emphasized that this is a top-down effort with full support of the President.

SEMI is preparing for the industry’s annual Washington Forum Advocacy Day and this issue will be a major topic for several of our meetings between senior member company executives and government officials. We also are planning a Silicon Valley event for members to meet with key government officials this July. This will be a good opportunity for companies to learn more about this reform effort and to weigh in with their views.

The White House has released a Fact Sheet on this initiative (link is http://www.whitehouse.gov/the-press-office/fact-sheet-presidents-export-control-reform-initiative). Secretary Gates speech is available on line here (link is http://www.defense.gov/speeches/speech.aspx?speechid=1453 )

For more information, please contact Maggie Hershey in the SEMI Washington office at mhershey@semi.org.

May 4, 2010