Technology Export Controls Set to Loosen -- the Question Is When

News that the U.S. wants to reform technology export controls might sound like a call for the snooze alarm, but it could positively affect a lot of industries, including but not limited to high tech. If it actually happens as promised, and if done right, it could make many U.S. goods quickly more competitive around the world -- reason enough for executives to pay close attention to the issue and ready themselves to make themselves heard by officials.

The U.S. has a confusing patchwork of regulations and organizations all intended to keep sensitive technology out of the hands of unfriendly countries and parties. But it's anything but an efficient bundle of joy, as John Timmer writes in Ars Technica:

For starters, the three agencies that deal with export controls, the Departments of State, Defense, and Commerce, can't even communicate across IT systems to see what the others are up to as far as export controls. On top of that, there's not a single list; instead, two separate lists are maintained, and they use different approaches to defining the products that are subject to controls. Enforcement is spread across a number of different agencies, as well.In the end, the White House has concluded that the US Government lacks "the capability of knowing what it has approved for export and, more significantly, what it has denied."
Among the list of parts of government that get involved, according to what Steptoe & Johnson partner Edward Krauland told me, are the Departments of Defense, State, and Commerce, with the Office of Foreign Assets Controls thrown in for good measure, because it which administers the economic embargoes. And that may not be all. "No one to my knowledge has talked about the nuculear export regimes by the Department of Energy and the Nuclear Regulatory Commission," Krauland says.

The result is confusion and difficulty for companies to know whether what they ship is legal or not, as well as the question of whether the government's decisions have made any sense. At one point, Apple found that the G4 PowerPC chip it used was on an export restriction list because someone, somewhere had said it was a super computer. Even in its heyday, that wasn't close to the case. But if a part is on the control list, a product using it can't ship without permission.

As the White House itself noted, an example of the regulatory wilderness included brake pads for the M1A1 tank, prohibited from export as much as the tank itself, even though fire truck brake pads that are virtually identical are clear to ship.

All this has turned into a competitive anchor for U.S. firms. Just getting a license adds delay. "Also, US export controls are extra territorial," Akin Gump Strauss Hauer & Feld partner Edward Rubinoff said to me. "Controls on a number of different items on defense articles and to some degree on dual use items can still be controlled to some degree when they leave the United States." In other words, a foreign buyer can be forced into limits on how it can use a product and whether it can re-export it, even if a component in something else. "You hear a lot from foreign companies that they'll design out US components so they don't have to be burdened with US re-export controls."

Right now, the hope is to narrow things down to just two lists, one from the Department of Commerce and the other from the Department of Defense. The latter would cover military products and components and the former would be so-called dual use items, which are items that were designed for commercial use but that can have military uses.

There's also hope that the two lists could have a parallel structure, with common definitions of terms and a similar approach to processes, decision making, and paperwork, and that there might greater leeway on items that either don't serve a significant military advantage or where comparable products are commonly available. That does get into a sticky area, though. At what point do you draw the line? If a country makes and readily sells a given missile system, should defense manufacturers in the U.S. be able to sell something equivalent even if they currently can't?

Nothing is going to happen soon, because much of the work will involve changing statutes, and members of Congress have other things on their minds, like economic danger and getting re-elected. So don't count on significant changes for at least a couple of years. Additionally, only the broad concepts are out. The details will show how much relief might come and which companies and industries get it.


Image: user barunpatro, site standard license.