EAR

The Impact of Export Controls by Fiat

DS_CirclingBeltwayAs frustration on The Hill grows over the Administration’s use of executive orders to effect reform, little attention is given to the impact of unilateral executive action on the U.S. export control system.

The Power to Regulate Foreign Trade

The U.S. Constitution places the power to regulate foreign trade with Congress. Specifically, Article I, Section 8 of the Constitution provides Congress with the power to “regulate commerce with foreign nations.” Article II provides the President with authority to negotiate treaties, but the Senate must approve these.

Nevertheless, because the country needs to speak with a single voice in international affairs, and because Congress is not equipped to operate at the level needed for regular multilateral engagements, Congress has historically passed laws to provide the President with limited powers over international trade. Among these, Congress passed the Arms Export Control Act of 1976 (“AECA”) and the Export Administration Act of 1979.

Passed shortly after, and in keeping with the intent of, the War Powers Resolution, the AECA and Export Administration Act were intended to both empower and limit presidential authority to control the export of U.S. high technology and arms. The regulations administered under the President’s delegation of these authorities establish the framework of today’s U.S. export control system.

Continuing the EAR by Executive Order

The Export Administration Act served as authority for the Department of Commerce’s Export Administration Regulations (“EAR”). However, the Act expired in 2001, despite several attempts at reauthorization.

Albeit the time, energy, and millions of dollars spent in the President’s Export Control Reform Initiative, legislation to reauthorize the Export Administration Act remains far from sight. Instead, the President issued a series of executive orders allowing the Department of Commerce to continue administering the EAR under the authority of the International Emergency Economic Powers Act (“IEEPA”).

Previous presidents have also issued orders continuing the EAR under IEEPA. However, a stated goal of the current Administration is to fundamentally reform the export control system. So its decision not to seek reauthorization of the Export Administration Act or to find a sponsor to introduce other legislative authority for the EAR is inconsistent with an obvious requirement of any fundamental reform package – enabling legislation.

Congress passed IEEPA for use during national emergencies, specifically noting within the Act: “The authorities granted to the President by section 1702 of this title may only be exercised to deal with an unusual and extraordinary threat with respect to which a national emergency…” [F/N 1]

IEEPA was not intended to serve as long-term authority for the EAR. Although courts recognize it as authority for agency enforcement of EAR violations, IEEPA does not address control lists, multilateral regime commitments, reasons for control (i.e., national security, foreign policy, and short supply), foreign availability determinations, limitations on the use of unilateral “foreign policy” based controls, types of licenses, and license processing. These are all necessary elements of the U.S. export control framework previously addressed by the Export Administration Act.

Other critical gaps include IEEPA’s lack of a confidentiality provision protecting information provided in license applications submitted to the Department of Commerce from public disclosure. One court already recognized this gap in underlying authority, which it used as a basis to deny a government attempt to enforce EAR record confidentiality provisions under IEEPA’s authority. [F/N 2] This gap presently allows companies to obtain otherwise propriety information on a competitor’s customers via a Freedom of Information Act request.

Dismantling the Arms Export Control Act

The AECA provides Congressional authority for the President’s control of arms exports under the International Traffic in Arms Regulations (“ITAR”), which are administered by the Department of State. The AECA expressly forbids the President from creating country-based exemptions to ITAR license requirements without bilateral defense trade treaties.

Overall, the current Administration has pursued relatively few international treaties compared to prior administrations. Viewing the AECA treaty requirement as overly burdensome, the Administration premised export reform on circumventing the AECA treaty requirement by (1) transferring articles from AECA jurisdiction to IEEPA jurisdiction; and (2) creating the “Strategic Trade Authorization” license exception in the EAR to serve as a new country-based license exception for items transferred to IEEPA jurisdiction.

Notification of the transfers to Congress by the President was required under AECA Section 38(f). To date, the President has provided 38(f) notifications to Congress for the transfer of thousands of items from AECA jurisdiction. Because the Administration’s stated purpose in making these transfers is to permit exemptions otherwise prohibited under the AECA, the constitutionality of this executive action is questionable. In addition, the fact that transfers were being made to the jurisdiction of IEEPA, legislation not intended to serve as a primary export authority for the EAR, provided another reason for Congress to challenge the transfers. Yet, Congress did not take action to stop the transfers.

Will the 114th Congress Take Action on Export Reform?

Both the Administration and the Congress agree on the need for export control reform, but they differ on how to pursue it. This difference was highlighted in a hearing held early in the reform effort by Representative Ileana Ros-Lehtinen (R-FL), Chairwoman of the House Foreign Affairs Committee, where she said:

“To date, a compelling case has not been made for the wholesale restructuring of our current system, especially one that would include the creation of a costly and perhaps unaccountable new federal bureaucracy.” [F/N 3]

In other words, it seemed that many on The Hill, especially GOP members, preferred amending the AECA to allow limited country-based exemptions in the ITAR instead of the arduous list transfers and creation of additional agency bureaucracies. The Administration has largely ignored this divergent view, and Congress has done little in response. This lack of Congressional action is likely to continue, at least into the first half of the 114th Congress, because the adverse impact of export controls on U.S. national security is a complex issue that does not ordinarily resonate with members of Congress or their constituents.

Nevertheless, disconnects between U.S. export control regulations and their legislative framework are becoming increasingly apparent with changes being made in the reform effort. These gaps place proprietary exporter information at risk and provide the Executive Branch with wide discretion in foreign trade not otherwise permitted under the AECA or the Export Administration Act. The U.S. Government’s failure to maintain comprehensive export control legislation also sends the wrong message to its international partners about our country’s commitment to multilateral obligations.

*   *   *

[F/N 1] 50 U.S.C. § 1701(b).

[F/N 2] See July 12, 2013, Order Re Cross-Motions for Summary Judgment in Electronic Frontier Foundation v. Department of Commerce, California Northern District Court, Case No. 4:12-cv-03683 (“Because the EAA is expired, the IEEPA is not an Exemption 3 statute, and Executive Order 13222 is not a statute, Commerce cannot rely on Exemption 3 to withhold materials responsive to EFF’s request.”).

[F/N 3] See “Ros-Lehtinen Opening Statement at Export Control Reform Hearing,” May 12, 2011, available at http://archives.republicans.foreignaffairs.house.gov/news/story/?1820

___________________

*The above is not intended as an exhaustive list of restrictions that may apply to a particular transaction nor advice for a specific transaction because the specifics of an individual case may implicate application of other U.S. laws as well as foreign laws that carry added or different requirements.  In addition, U.S. export control and sanctions laws are frequently subject to change.  Such changes can affect the continued validity of the information above, which is based on U.S. law existing as of November 24, 2014. For these reasons, assistance from a qualified attorney competent to advise on such matters is highly recommended.

Matthew A. Goldstein is an International Trade Attorney in Washington D.C. licensed to practice in the District of Columbia.  He can be reached at (202) 550-0040 and Matthew@GoldsteinPLLC.com

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