Bureau of Export Administration: Encryption Items Transferred from the U.S. Munitions List to the Commerce Control List

Published by the Government Accountability Office on 1997-01-13.

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

      United States
GAO   General Accounting Office
      Washington, D.C. 20548

      Office of the General Counsel


      January 13, 1997

      The Honorable Larry Pressler
      The Honorable Ernest F. Hollings
      Ranking Minority Member
      Committee on Commerce, Science, and Transportation
      United States Senate

      The Honorable Thomas J. Bliley, Jr.
      The Honorable John D. Dingell
      Ranking Minority Member
      Committee on Commerce
      House of Representatives

      Subject:   Department of Commerce, Bureau of Export Administration: Encryption
                 Items Transferred From the U.S. Munitions List to the Commerce Control

      Pursuant to section 801(a)(2)(A) of title 5, United States Code, this is our report on
      a major rule promulgated by Department of Commerce, Bureau of Export
      Administration (BXA), entitled "Encryption Items Transferred From the U.S.
      Munitions List to the Commerce Control List" (RIN: 0694-AB09). We received the
      rule on December 24, 1996. It was published in the Federal Register as an interim
      rule on December 30, 1996. 61 Fed. Reg. 68572.

      The interim rule implements the Administration's policy on encryption exports and
      reexports as announced in Executive Order No. 13026 and a Presidential
      Memorandum, both dated November 15, 1996. The rule amends the Export
      Administration Regulations by imposing national security and foreign policy controls
      on certain information security systems and equipment, cryptographic devices,
      software and components specifically designed or modified therefor, and related
      technology. In addition, the rule requires a license for exports and reexports to all
      destinations, except Canada, of certain encryption items.

The interim rule is effective on the date of publication in the Federal Register
notwithstanding the provisions of 5 U.S.C. § 801(a)(3) which require a 60-day delay
in the effective date of a major rule. The Assistant Secretary for Export
Administration has determined pursuant to 5 U.S.C. § 808(2) that there is good
cause to waive the requirement to provide notice and public participation since the
delay would be contrary to the public interest. This determination was made based
on the rule implementing an initiative intended to protect the national security and
foreign policy interests of the United States and streamline export controls for
encryption items.

Enclosed is our assessment of the BXA's compliance with the procedural steps
required by section 801(a)(1)(B)(i) through (iv) of title 5 with respect to the rule.
Our review indicates that the BXA complied with the applicable requirements.

If you have any questions about this report, please contact James Vickers, Senior
Attorney, at (202) 512-8210. The official responsible for GAO evaluation work
relating to the subject matter of the rule is Louis Rodrigues, Director, Defense
Acquisition Issues. Mr. Rodrigues can be reached at (202) 512-4841.

Robert P. Murphy
General Counsel


cc: Sue E. Eckert
    Assistant Secretary for Export Administration
    Department of Commerce

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     ANALYSIS UNDER 5 U.S.C. § 801(a)(1)(B)(i)-(iv) OF A MAJOR RULE
                              ISSUED BY
                     COMMERCE CONTROL LIST"
                           (RIN: 0694-AB09)

(i) Cost-benefit analysis

The Bureau of Export Administration (BXA) performed a cost benefit analysis in
regard to the interim rule. The cost to the government is estimated to be $1,000,000
for fiscal year 1998 for funding 13 positions to administer the initiative. BXA has
requested a departmental transfer of $834,000 for fiscal year 1997. These costs
include administering existing export controls on encryption products which are
transferred from the State Department and new changes that liberalize export
controls and promote development of a key management infrastructure.
For companies that choose to export, there will be costs associated with
researching, developing, and marketing new encryption recovery products which
costs are not quantified in the analysis. The costs associated with complying with
the information collection requirements of the interim rule are estimated to be
$591,850 for the industry.

The benefits derived from the interim rule are the promotion of the growth of
electronic commerce and secure communications worldwide through the
development of a domestic and international key recovery infrastructure, which
benefits national security, law enforcement and public safety. This includes the
establishment of Trusted Third Parties who will safeguard keys and make them
available to authorized persons, providing access by the government to clear text of
material that has been encrypted.

(ii) Agency actions relevant to the Regulatory Flexibility Act, 5 U.S.C. §§ 603-605,
607 and 609

Because the interim rule was exempted from the Administrative Procedure Act, as
discussed below, it is not subject to the Regulatory Flexibility Act.

(iii) Agency actions relevant to sections 202-205 of the Unfunded Mandates Reform
Act of 1995, 2 U.S.C. §§ 1532-1535

The interim rule does not contain a Federal mandate under Title 2 of the Act for
State, local or tribal governments or the private sector and therefore, section 202
and 205 of the Act are inapplicable.

In addition, the interim rule does not affect small governments or contain a
significant intergovernmental mandate. Accordingly, sections 203 and 204 of the
Act, which require agencies to consult with small governments and solicit input
from State, local and tribal governments, are also inapplicable.

(iv) Other relevant information or requirements under Acts and Executive orders

Administrative Procedure Act, 5 U.S.C. §§ 551 et seq.

Since the interim rule involves a military and foreign affairs function, the provisions
of the Administrative Procedure Act requiring a notice of proposed rulemaking, the
opportunity for public participation and a delay in the effective date are
inapplicable. 5 U.S.C. § 553(a)(1).

However, the BXA has issued the rule as an interim rule and comments are being
accepted until February 13, 1997, and will be considered prior to the development
of final regulations.

Paperwork Reduction Act, 44 U.S.C. §§ 3501-3520

The interim rule contains information collections subject to the Act. The
collections have been approved by the Office of Management and Budget and
assigned control numbers 0694-0048 and 0694-0088.

In addition, the interim rule contains a new information collection requirement
subject to the Act which has received emergency approval by OMB and assigned
control number 0694-0104. The burden hours estimated for the new requirement
include: marketing plans (40 hours each); semi-annual progress reports (8 hours
each); safeguard procedures (4 hours each); recordkeeping (2 hours each); and
annual reports (4 hours each). Comments regarding this new information collection
are solicited in the preamble to the interim rule.

Statutory authorization for the rule

While the Export Administration Act (50 U.S.C. app. § 2401 et seq.) expired on
August 20, 1994, the President invoked the International Emergency Economic
Powers Act and continued in effect, to the extent permitted by law, the provisions

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of the Export Administration Act and the Export Administration Regulations in
Executive Order No. 12924 (August 19, 1994), notice of August 15, 1995 (60 Fed.
Reg. 42767) and notice of August 14, 1996 (61 Fed. Reg. 42527).

Executive Order No. 12866

The interim rule was reviewed by the Office of Management and Budget under the
Executive Order as a "significant regulatory action." The Office of Information and
Regulatory Affairs of OMB approved the interim rule as complying with the
requirements of the Order based on the information supplied by the BXA, including
a planned regulatory action document describing the reason for the rule and an
assessment of the costs and budgetary impact of the rule.

Executive Order No. 12612 (Federalism)

The BXA has determined that the interim rule does not contain policies with
Federalism implications sufficient to warrant preparation of a Federalism
assessment under the Order.

In its submission, BXA did not identify any other statute or executive order
imposing procedural requirements relevant to the interim rule.

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