oversight

Export Controls: Commerce Department Has Improved Its Foreign Policy Reports to Congress

Published by the Government Accountability Office on 1990-06-12.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

            ..                     .._..-.-...-
                                             ..-_--l___.__l_-_ll__l
                                                              ..-..--
 .JII Ilf’ I !)!10
                                                                 EXPORT CONTROLS
                                                                 Commerce Department
                                                                 Has Improved Its
                                                                 Foreign Policy Reports
                                                                 to Congress
                                                                                                          -   .-
                                                                                                                            4s




                                                                                                                   IIlllllll
                                                                                                                         II11
                                                                                                                    141559




(;A(),
  NSIAI)-!Wlti!b
-_..
  I-.. ll_.-“.-.-.-.” . . --.--.._
                                .-..-   “--...._..._--
                                                    -__.- -__--.--_ .___._._____..-.._____._.._.______
                                                                                                    _._
                   United States
                   General Accounting Office
                   Washington, D.C. 20548

                   Comptroller General
                   of the United States

                   R-222992

                   June 12,199O

                   To the President of the Senate and the
                   Speaker of the House of Representatives

                   The Export Administration Act of 1979, as amended, requires that we
                   assess each report the Secretary of Commerce issues that concerns
                   imposing, expanding, or extending foreign policy export controls for
                   compliance with the act. This report provides our assessment of three
                   such reports the Secretary recently issued to the Congress. We reviewed
                   the Secretary’s reports on (1) imposing and expanding foreign policy-
                   based controls on certain chemicals used as weapons precursors, dated
                   December 12, 1989, (2) extending controls already in place, including
                   those involving human rights and regional stability, dated January 19,
                    1990, and (3) imposing controls on equipment used to produce fuel for
                   nuclear-capable missiles, also dated January 19, 1990. This report also
                   provides our observations (1) on the decreasing distinction between
                   national security-based and foreign policy-based controls and (2) the
                   possibility of removing the requirement that we assess the Secretary’s
                   reports.


                   The Export Administration Act authorizes the President to establish
Background         export controls for economic, national security, and foreign policy rea-
                   sons. For foreign policy controls, it provides that the President, through
                   the Secretary of Commerce, may prohibit or curtail exports to the extent
                   necessary to further significantly the foreign policy objectives of the
                   United States or to fulfill its declared international obligations. How-
                   ever, the President’s use of such controls is limited. The act states that
                   the President may impose, expand, or extend such controls only if he
                   first (1) consults with the Congress, (2) makes certain determinations
                   regarding the impact, significance, and effectiveness of proposed con-
                   trols, and (3) reports to the Congress. The act also requires us to assess
                   the reports to Congress to ensure that they fully comply with the statu-
                   tory reporting requirements. Our assessments are not a review of the
                   policy, administration, or scope of the controls themselves.


                   Our review showed that these three reports comply with the act’s
Results in Brief   reporting requirements. In our last assessment of Commerce reports, we
              Y    found reporting deficiencies in two areas - foreign availability of con-
                   trolled missile-related equipment and technology and industry consulta-
                   tion regarding controls on certain biological organisms used in weapons


                   Page 1                                        GAO/NSl.AlWI-169   Export   Controls
                      B-222992                                                                                   J




                      development. We found in our current review that Commerce has
                      improved reporting on foreign availability of controlled missile-related
                      items and more fully consulted with industry concerning biological orga-
                      nisms controls than it did when it reported to the Congress on the
                      results of such consultations in February 1989.

                      Regarding foreign policy-based export controls generally, on several
                      occasions in recent years the President has imposed such controls in
                      part for the protection of U.S. security interests. We believe that impos-
                      ing security-related foreign policy-based controls to some degree has
                      blurred the distinction between foreign policy-based controls and
                      national security-based controls.

                      Increased reliance on foreign policy-based controls may harm the com-
                      petitiveness of US. industry because the act makes foreign policy-based
                      controls easier to impose and more difficult to remove than national
                      security-based controls. Moreover, foreign policy-based controls, when
                      they are unilateral, do not deny the controlled items to the target coun-
                      try, except if the United States is the sole source of the controlled items.

                      Finally, Commerce’s reports have improved markedly since we began
                      assessing such reports in 1986. Therefore we believe that the Congress’
                      intent that GAO’S assessments help assure that the executive branch
                      fully consider all the factors required by the act and keep the Congress
                      fully informed about its intentions has been fulfilled. The Congress
                      therefore may wish to consider deleting the requirement that GAOassess
                      future reports.


                      Since our last assessment,’ Commerce has issued the three previously
Commerce’sLatest      cited reports. Based on our review of these reports and their underlying
Reports Comply With   d ocumentation, we believe that they comply with the act’s reporting
the Act’s Reporting   requirements. The act requires these reports to address nine subjects for
                      each control. The subjects are the (1) control’s purpose, (2) probability
Requirements          that the control will achieve its intended purpose, (3) compatibility of
                      the control with US. foreign policy objectives, (4) reaction of other
                      countries to the control, (5) economic impact of the control, (6) U.S. abil-
                      ity to enforce the control, (7) consequences of modifying the control, (8)
                      alternative means for achieving the control’s purpose, and (9) foreign
                      availability of the controlled item. The act also requires the reports to

                           rt Controls: Assessment of Commerce Department’s Foreign Policy Report to Congress (GAO/
                                 90, Sept. 13, 1989).



                      Page 2                                                    GAO/NSIA.IMKL169     Export   Ckmtrob
  I
                         B-222992




                         discuss the Secretary of Commerce’s efforts to consult with industry
                         prior to imposing or expanding controls.

                         In our 1989 assessment of Commerce’s report imposing new foreign pol-
                         icy-based controls on chemicals and biological agents, we found that
                         Commerce did not give industry timely notice of a meeting in which new
                         controls on biological organisms were to be discussed. In reviewing the
                         Secretary’s January 19, 1990, report on the extension of existing con-
                         trols, however, we found that Commerce has adequately consulted with
                         industry by holding a second meeting with industry representatives and
                         has revised the controls to incorporate industry concerns.

                         Commerce also has more fully reported the information available to it
                         on the foreign availability of missile-related technology and equipment
                         than it has in previous reports. In our assessment of Commerce’s
                         1987 report on the imposition of foreign policy export controls on mis-
                         sile-related items, we stated that the discussion of foreign availability
                         focused on certain U.S. allies who were participating in an international
                         effort to limit availability of these products2 We noted that the report
                         did not present information on whether other countries might be capa-
                         ble of undermining the controls. In our review of Commerce’s 1988 and
                         1989 reports extending and expanding these controls, we noted that
                         Commerce’s discussion of this issue had not improved,3 However, this
                         year’s reports include pertinent information compiled by Commerce’s
                         Office of Foreign Availability. For example, the report names nine coun-
                         tries outside the eight-nation Missile Technology Control Regime that
                         have manufacturing capabilities in this area.


                         Since 1986, the United States has imposed a number of foreign policy-
Foreign Policy-Based     based controls that are intended in part to protect U.S. security inter-
and National Security-   ests. We believe that imposing these controls has blurred the distinction
Based Controls Are       between national security-based and foreign policy-based controls. This
                         has occurred despite the fact that the act seeks to distinguish between
Becoming Blurred         the two types of controls.

                         Section 5 of the Export Administration Act, which deals with national
                         security-based controls, authorizes the President to restrict the export of



                                      Controls: Assessment of Commerce Department’s Foreign Policy Report to Congress (GAO/
                                  -     -    , pt. ( 1 >,



                         Page 3                                                          GAO/N&W-90-169      Export   Controls
0222992                                                                                      *i




any good or technology that would harm U.S. national security by mak-
ing a significant contribution to the military potential of any country or
combination of countries. Currently, the President imposes these con-
trols on the seven members of the Warsaw Treaty Organization, the Peo-
ples’ Republic of China, and five other Communist countries.4 Even
though section 6 permits the President to add or remove countries from
this list, President Reagan has been the only one to do this, when he
removed Yugoslavia from the list in 1985. Thus, national security con-
trols continue to target only traditional US. Communist adversaries.

Section 6 of the act, which deals with foreign policy-based controls, per-
mits the President to impose such controls on any good, technology, or
other information under the jurisdiction of the United States to signifi-
cantly further U.S. foreign policy or to fulfill its declared international
obligations. As we noted in our I986 assessment, most controls imposed
for foreign policy purposes are symbolic because (1) their stated pur-
poses are to limit U.S. involvement with a specific country and (2) the
targets of the controls can use available foreign items and so incur little
or no cost.” However, some foreign policy-based controls are intended in
part to respond to challenges to U.S. security interests around the world.

Imposing foreign policy-based controls that are security related has
become more common in recent years. For example, in April 1987, in
part to help curtail the proliferation of missile systems capable of deliv-
ering nuclear weapons, the United States imposed foreign policy-based
controls on the export of certain missile-related technology. Similarly, in
February 1989, in part to curb weapons proliferation, the United States
imposed foreign policy-based controls on the export of certain chemicals
and biological organisms used in weapons development.

Notwithstanding the legislative distinction between national security-
based and foreign policy-based export controls, we believe that imposi-
tion of security-related controls under section 6 of the act has, to some
extent, blurred the distinction between the two types of controls. More-
over, we believe that this blurring will become more pronounced if the
United States increases its reliance on foreign policy-based controls as a
result of redefining its security interests to emphasize preventing

4The seven Warsaw Treaty Organization countries are the Soviet Union, Rumania, Poland, Bulgaria,
Hungary, the German Democratjc Republic, and Czechoslovakia. The five other countries are Viet-
nam, Cuba, Albania, Mongolia, and North Korea.

      rt Controls: Assessment af Commerce Department’s Foreign Policy Report to Congress (GAO/
          _ 6 -172,   Aug. 19,lgW.



Page 4                                                       GAO/NSIAD-66-169    Export   Chtrols
                           regional instability or proliferation of certain weapons and de-empha-
                           sizes more traditional national security objectives.


Foreign Policy-Based       Increased reliance on foreign policy-based controls may harm the com-
Controls May Harm U.S.     petitiveness of U.S. industry. The act makes foreign policy-based con-
                           trols easier to impose and more difficult to remove than national
Industry’s                 security-based controls, and U.S. exporters bear the burden that unilat-
Competitiveness and Pose   era1 foreign policy controls impose. Also, unilateral foreign policy-based
Enforcement Problems       controls do not deny the controlled items to the target countries, except
                           if the United States is the sole source of the items.

                           Foreign policy-based controls are easier to impose than national secur-
                           ity-based controls for two reasons, First, the act permits the President to
                           impose foreign policy-based controls unilaterally, while a 1988 amend-
                           ment to the act prohibits the United States from (1) maintaining unilat-
                           eral national security-based controls unless it is the sole producer of the
                           item and (2) temporarily maintaining them unless the President is
                           actively pursuing negotiations to achieve multilateral control. Second,
                           unlike national security-based controls, foreign policy-based controls are
                           not necessarily coordinated with members of the multilateral body
                           known as the Coordinating Committee on Multilateral Export Controls,
                           or COCOM,” before they are imposed. Consequently, when the United
                           States is contemplating imposing such a control, it is not formally con-
                           strained by any objections from its allies. In addition, because COCOM wa5
                           organized to coordinate controls on exports to the Communist world, it
                           is uncertain as to whether COCOM would impose controls on exports to
                           other destinations.

                           Foreign policy-based controls are also harder to remove than national
                           security-based controls because they can be retained despite widespread
                           foreign availability and because they often come to symbolize U.S.
                           resolve.

                           The Secretary of Commerce’s reports over the past several years have
                           disclosed that there is widespread foreign availability of virtually all
                           controlled items. However, by defining the foreign policy purposes of
                           these controls in a symbolic context-such     as to distance the United
                           States from the specific actions of certain foreign nations-controls    on


                           “CQCOM is an informal, nontreaty organization, composed of members of the North Atlantic Treaty
                           Organization (excluding Iceland), plus Japan and Australia, that coordinates export control policy.



                           Page 5                                                         GAO/NSIAD-90-169     Export   Controls
                                                                           ~-
B-222992                                                                        e




the specific items can continue despite foreign availability of the con-
trolled items. Thus, as we reported in 1986, a foreign policy-based con-
trol may remain in force even if foreign availability renders the control
unable to influence the target country’s behavior that led to the con-
trol’s imposition.

As we also reported in 1986, symbolic controls take on dimensions
beyond their original purposes when their renewal is considered. Once in
place, possible removal is viewed as signaling a lessening of US. resolve
or commitment. Consequently, there is a reluctance to remove such con-
trols without a quid pro quo.

When foreign policy-based controls serve symbolic purposes and are
unilaterally imposed, which is generally the case, U.S. businesses lose
export sales to firms in other countries. The Secretary’s reports have
consistently detailed the substantial costs imposed on U.S. businesses by
many of the controls.

Finally, unilateral foreign policy-based controls are particularly difficult
to enforce because, as we reported in our 1986 assessment, the United
States has difficulty in controlling the items when other countries have
not imposed similar controls. Thus, while enforcement difficulties do not
render purely symbolic unilateral controls ineffective in achieving their
intended purposes, the availability of the items from other countries and
U.S. inability to control the flow of controlled U.S.-origin goods after
they leave the United States make it difficult to prevent proliferation
using a unilateral foreign policy-based control.

We discussed these matters with officials from the Departments of Com-
merce and State responsible for the foreign policy reports’ preparation.
The Commerce official generally agreed with our observations. He said
he believed the distinction between the two types of controls has blurred
in recent years, and that foreign policy-based controls are too easy to
impose and too difficult to remove relative to national security-based
controls. The Department of State official disagreed with us. He said he
believed the two types of controls will remain distinct because, while
national security-based controls are intended to protect the United
States and its North Atlantic Treaty Organization allies from attack, for-
eign policy-based controls are intended to promote more purely foreign
policy interests, including other security interests,

We agree that national security-based controls and foreign policy-based
controls may remain analytically distinct concepts, even if the United


Page 6                                         GAO/NSJAD-99-169   Export   Controls
                    States redefines its security interests. Yet, in practice, the distinction
                    between the two types of controls has blurred, and may blur further to
                    the extent those interests are redefined.


                    Since we began assessing Commerce’s foreign policy reports to Congress
Since 1986,         pursuant to the act, the quality of the reporting has improved considera-
Commerce’sReports   bly. As we testified in 1986, the Congress added the requirement to the
Have Improved       act that we assess each report to ensure that the executive branch fully
                    consider all the factors required by the act and keep the Congress fully
Markedly            informed about its intentions7

                    Since then, we have reviewed 16 such reports. Although all of them met
                    the act’s reporting requirements, many of them contained a number of
                    weaknesses, such as incomplete discussions of enforcement difficulties
                    and foreign availability, and omission of other information on the con-
                    trols’ impact and effectiveness. We recommended ways to improve
                    reporting in some of these areas. Commerce has largely incorporated
                    these recommendations into subsequent reports. In fact, we believe the
                    quality of this year’s reports suggests that the Congress’ intent has
                    largely been realized.


                    The Congress may wish to consider amending the Export Administra-
Matters for         tion Act to delete the requirement that we assess future reports in light
Congressional       of their improved quality and compliance with the act’s requirements.
Consideration

                    We (1) reviewed the act and its background to identify the requirements
Scopeand            the Department of Commerce reports must meet, (2) examined the three
Methodology         recent Commerce reports for compliance with these requirements, (3)
                    discussed development of the reports with the Commerce Department
                    employees who prepared them, and (4) examined the documentation,
                    analysis, and methodology supporting the reports. In addition to assess-
                    ing each of the reports, we also determined the extent to which they
                    presented all the information available to Commerce so as to enhance
                    their completeness and utility to the Congress.



                    7Statement of Allan I. Mendelowitz Before the Senate Committee on Banking, Housing, and Urban
                    AfF airs on orei    oli    x rt



                    Page 7                                                      GAO/NSIAD90-169     Export   Control.a
                                                                               lc

B-222992                                                                      I




Regarding the distinction between foreign policy-based and national
security-based controls, we reviewed sections 6 and 6 of the act to deter-
mine how the two types of controls may be implemented, reviewed the
history behind the imposition of certain such controls, and discussed
blurring with Commerce and State Department officials responsible for
the reports’ preparation.

We conducted our review between February and March 1990 according
to generally accepted government auditing standards. Throughout our
review, we discussed these issues with agency officials and have incor-
porated their comments where appropriate.


We are providing copies of this report to appropriate House and Senate
committees; the Secretaries of Commerce and State; the Director, Office
of Management and Budget; and other interested parties.

This report was prepared under the direction of Allan I. Mendelowitz,
Director, Trade, Energy, and Finance Issues, who may be reached on
(202) 276-4812. Other major contributors were Steven Sternlieb, Project
Director, and David Genser, Project Manager.




Charles A. Bowsher
Comptroller General
of the United States




Page 8                                        GAO/NSIAB99-169   Export   Controla
‘1L!lt~pllOnt! 202-275-6241

The first. five copies of each report, are free. Aclclit.ional   copies are
$2.00 c%Ich.

l’httw is a 25% discount      on orders for 100 or 3nort5 copies rnailecl to a
single address.

Ortltw must, tw prepaid by cash or by chtwk or money order made
auf, t.0 the So~)t~rirttt?nd~ril. of TWwnwnts.