Protectionist export controls could be bad for nonproliferation

By Kenshin Cho | September 4, 2018

President Donald Trump poses with service members after signing the National Defense Authorization Act for Fiscal Year 2019 during a visit to Fort Drum, New York, on August 13, 2018. President Donald Trump poses with service members after signing the National Defense Authorization Act for Fiscal Year 2019 during a visit to Fort Drum, New York, on August 13, 2018. Credit: Michael Strasser/Defense Department

On August 13, President Donald Trump signed the John S. McCain National Defense Authorization Act for Fiscal Year 2019, a spending bill that includes a dense anthology of budgetary policies. In addition to funding the usual guns, missiles, and planes, this year’s bill updated export controls—an obscure tool of American foreign policy that limits exports of sensitive technologies, from pressure sensors used in centrifuges to rocket engines for nuclear missiles. The changes expand the regulations’ policy objectives to include an explicitly economic agenda and establish a mandate to explore further controls on emerging technologies, marking a renewed interest in a tool with significant implications for nonproliferation.

As discussions leading up to the spending bill revealed, influential voices misunderstand the nature of export controls, and key stakeholders increasingly disagree on their proper role. Policy makers and industry professionals are struggling to regulate disruptive technologies that defy conventional controls; to manage China as both friend and foe; and to accommodate a president who wants to use export controls as a protectionist tool.

Understanding these conversations will be critical in analyzing the ever-changing threat of weapons of mass destruction. Thoughtful debates contribute to effective policies that can mitigate proliferation and respond to China, all while minimizing economic impacts. But mismanaged, export control reforms can jeopardize American national security and spread dangerous technologies.

How export controls work. Export controls are laws and regulations designed to limit proliferation, restricting the outward flow of sensitive (military) and dual-use (civilian, but with military applications) goods and technologies. Most countries follow a similar model for regulating exports: Governments identify sensitive or dual-use goods, often relying on lists disseminated by international regimes like the Wassenaar Arrangement and the Nuclear Suppliers Group. Companies apply for licenses when they want to export listed items. Countries can also implement “catch-all” controls, which define certain end uses instead of specific items, requiring companies to apply for licenses when exporting anything that may be used for such purposes.

Traditionally, industry and government have agreed that export controls are necessary but should be limited. Controls are effective for national security objectives, like avoiding incidents such as the 1983 sale of sensitive Japanese machine tools to a Soviet submarine program. But export controls can be costly. Companies can lose business to competitors based in countries with looser restrictions or leaner bureaucracies. Export controls force companies to invest in compliance. Research and development, if it involves any foreign citizen or international cooperation, can be hindered.

Nevertheless, companies have generally complied with controls, recognizing their importance in preventing bad actors from acquiring dangerous technology. To its credit, the US government has also demonstrated restraint, applying controls only when necessary to meet its objectives of national security and foreign policy (including nonproliferation). Until recently, when the two stakeholders debated, they did so under a common framework, with revenue on one side and security on the other—and export controls as the valve between the two sides.

A changing framework. In the past several years, however, industry and government have begun to disagree on how best to apply export controls. Industry professionals continue to point out that exports bring in profits. But unlike before, many also believe that national security relies on innovative technologies facilitated by global trade. They argue that limiting the export of technologies will not stop their proliferation, because of China’s technological parity; and that wealth created by trade can fuel innovation that maintains the United States’ leadership, bolstering its national security. In the industry view, loosening export controls—or at least not arbitrarily tightening them—is good for both economics and security.

RELATED:
Terrorists are using consumer drones—and it’s getting harder to stop them

Government officials have also changed course, but in the opposite direction. They now believe that exports of key technologies not only aid proliferation and the transfer of critical military capabilities to adversaries, but also hurt the private sector. Competition, in their view, harms the domestic economy—an opinion that goes beyond mere security concerns. Their primary worry isn’t that American goods might go to China’s military, exposing the United States to better-equipped enemies; rather, they are worried that Chinese companies are using American innovation to win global market share, displacing American companies in the consumer technology market and eventually leading to job losses. In this framework, export controls simultaneously bolster America’s national security and its economy.

These fundamentally diverging views are leading to incohesive policy making. In the era of emerging threats to proliferation, that is an alarming prospect.

Protectionism and “national security.” The trend away from economic liberalism and toward a protectionist worldview flows from the top, with President Trump pushing the limits of traditional ideas of national security. In June, he imposed tariffs on steel and aluminum after commissioning two investigations under Section 232 of the Trade Expansion Act to justify his actions. The reports were designed to analyze the national security impacts of steel and aluminum, but Trump’s rhetoric, tweets, and administrative priorities suggested that the tariffs were largely driven by economic concerns. The tariffs exceeded the report’s recommendations and departed from the usual procedures of international negotiation and non-aggressive settlements. Trump’s use of tariffs to further the economic security of the United States signaled an unprecedented shift in thinking about security.

Under Trump, the Department of Commerce is also pushing the boundaries of traditional export control mechanisms. When the Chinese telecommunications company ZTE violated US sanctions, it was subjected to a “denial order” that almost guaranteed its bankruptcy. The message was clear: American laws are strong enough to cripple any Chinese firm. It was a raw display of power that went far beyond what is necessary to resolve export violations, which typically consists of dialogue and development of compliance infrastructure to guarantee better future behavior.

The ZTE case’s unintended consequences may be severe. The decision could antagonize businesses, breed mistrust, and push companies away from voluntarily disclosing export control violations. Countering proliferation relies on cooperation between government and business; any action to damage the relationship is dangerous.

Lawmakers are also adopting a protectionist view of export controls. At a House Foreign Affairs Committee hearing for the new law in March, Congressional representatives questioned officials from past administrations on the use of controls to protect civilian technologies, items that typically fall outside regulatory jurisdiction. For example, a congressman asked about protecting American pharmaceutical research from Chinese theft, repeatedly rebuffing experts’ attempts to explain the limited scope of export controls. The visible lack of understanding is concerning.

Regulating emerging technologies: a collaborative approach. A departure from the traditional notion of national security is somewhat inevitable, thanks to a growth in disruptive technologies. Tools like cybersecurity software, artificial intelligence, and 3D printing are no longer developed by the military for its sole use. During the Cold War, defense technologies such as radar and GPS “spun off” to the civilian world. Today, governments take technologies developed by engineers at civilian companies and customize them for the military. Maintaining technological leadership, a national security issue, has become a problem of regulating civilian exports. But there’s another dimension to the shift: Chinese firms are within striking distance of the latest Internet and communication technologies—unlike with missile components or nuclear technology, where the United States enjoys a big lead. Policymakers fear the threat of China’s technological parity, but their solution—to impose onerous controls on civilian technologies—can be just as threatening.

RELATED:
Terrorists are using consumer drones—and it’s getting harder to stop them

The technology sector’s reaction to rules introduced by the Wassenaar Arrangement in 2013 for “intrusion software,” which is designed to defend computer networks but could also be used by oppressive regimes to spy on their own citizens, highlights the challenges of regulating emerging technologies. It also provides a blueprint for industry-government collaboration to design effective polices. At first, policy makers at the US Bureau of Industry and Security inadvertently confused the business community by adopting the Wassenaar Arrangement’s broad technical parameters for cybersecurity tools. They faced immediate backlash, accused of disrupting any hope of innovation and ignoring the realities of modern technological development. Software companies depend on engineering teams around the world to collaboratively build programs and to identify and fix vulnerabilities as they arise. Applying for licenses on such a broad swath of technologies would have posed unsurmountable obstacles to development. But because software constantly evolves, regulators couldn’t define items too narrowly either. Speed, fluidity, and international cooperation underpin the growth of emerging technologies, challenging export controls that rely on clear technical parameters and long processing times to work.

Fortunately, the intrusion software case demonstrated that a solution to the challenges of disruptive technologies exists: collaboration. Facing criticism, the US Bureau of Industry and Security published proposed legislation, inviting comments from the technology sector. Eventually, they went back to the Wassenaar Arrangement and tweaked the rules, setting a precedent for healthy communication and compromise.

Risks for nonproliferation. For the most part, the new export control legislation is uncontroversial, designed primarily to replace the current statue that expired in 2001 but was held together through executive orders. Measures that have traditionally been effective at countering proliferation largely remain in place; dual-use components like those used in centrifuges, engines, and other traditionally sensitive items are still robustly regulated.

However, if arguments over the role of export controls continue, they could undermine current nonproliferation efforts by distracting government officials and diverting attention away from tried and true tools. Protectionist goals cannot be realized through current mechanisms, and the Bureau of Industry and Security cannot afford to devote resources to developing and enforcing an industrial strategy for the United States.

Hits to the legitimacy and effectiveness of export control institutions can also foster noncompliance by companies unsure of how best to deal with the Department of Commerce and other government agencies. Already, lawyers and compliance officers voice concerns about the administration’s protectionist tendencies. They question the defense bill’s expanded objectives for export control regulations, which include a goal to “protect the US industrial base,” an explicitly economic agenda.

The bill’s mandate to explore an interagency process to regulate “emerging technologies” is an important step in the right direction, so long as it moves forward in a transparent and nonpolitical manner. As the intrusion software incident showed, industry input remains key to addressing the challenges of new technologies.

The public should follow these conversations. Protecting American innovation is important. Chinese theft of intellectual property damages competitiveness and security, and lawmakers should be concerned. But to address these issues by expanding the scope of export controls can have serious ramifications for nonproliferation. It compromises the very foundation of America’s export control regime—a measured approach to mitigating the risks of global trade.


Together, we make the world safer.

The Bulletin elevates expert voices above the noise. But as an independent nonprofit organization, our operations depend on the support of readers like you. Help us continue to deliver quality journalism that holds leaders accountable. Your support of our work at any level is important. In return, we promise our coverage will be understandable, influential, vigilant, solution-oriented, and fair-minded. Together we can make a difference.

Get alerts about this thread
Notify of
guest
2 Comments
Oldest
Newest Most Voted
Inline Feedbacks
View all comments
Farhan Haque
Farhan Haque
5 years ago

Good read.

Paul LE
Paul LE
5 years ago

Well written. I agree that the tariffs are a mistake and that some of our best ways to innovate are through sharing. I also agree that the collaboration on intrusion software in 2013 was effective. Much of the credit for that goes to Kevin Wolf, Assistant Secretary of Commerce for Export Administration in the Bureau of Industry and Security from 2010 to 2017 – he is in the hearing referenced. He was marvelous (not perfect) and that collaboration was his bread and butter. He was also prescient enough to see that “disruptive” technologies would require the regulations to be flexible.… Read more »