The world has changed. Export regulations haven’t.

The Cold War-era U.S. export control system is the same system used today to keep sophisticated technology and weapons, often with components widely put to non-military use, from getting into the hands of restricted nations and terrorists. 

And the government says this no longer makes sense.

“It was a world without the Internet, it was a world without GPS, it was a world without cellular communication,” a State Department official involved in export controls told Main Justice. “It was a world without anything.”

The Obama administration is in the midst of the first major export control reform in decades, an effort jump-started by Secretary of Defense Robert Gates, who ended his tenure in June. Indeed, those who work in the field say updates have been so piecemeal over the years that they struggle to say when the regulations last saw any real overhaul.

The idea now is not only to give U.S. companies less red tape when seeking licenses for exports, but also to improve national security by letting regulators put more effort to monitoring truly sensitive and dangerous exports while putting less attention to tens of thousands of less sensitive, but sometimes tightly regulated items.

Vague rules tax enforcement

“[O]nerous and complicated restrictions too often fail to prevent weapons and technologies from going places they shouldn’t,” Gates said in an April 2010 speech on export reform.

The regulations are meant to ensure businesses can ship goods abroad while maintaining U.S. strategic advantage over terrorist groups and countries like Iran and China. But finding out what is covered — and where — can be a challenge.

Exports fall into two groups: Military items and “dual use” items that may have military and civilian uses.

Military products are covered by the International Traffic in Arms Regulations and the Arms Export Control Act using the U.S. Munitions list and require a State Department license before export. “Dual use” products are covered by Export Administration Regulations using the Commerce Control List and may require a Commerce Department license.

Exports on the munitions list almost always require a license, no matter how small or insignificant the item, and even for shipments to U.S. allies. The Commerce list, by contrast, is designed to make items going to friendly countries easier to export while still maintaining controls to non-allies.

Under the current system, it’s unclear which items fit which category.

Warheads for cruise missiles may be easily defined as munitions. But something like global positioning technology, developed for the U.S. Navy during the Cold War, has scores of civilian uses — yet it’s military in origin.

Under the revision, exports on the two lists will be described with objective criteria – specifications that either apply to an item or don’t, as opposed to vague catch-all language — and will clearly fall to the jurisdiction of either the State Department’s Directorate of Defense Trade Controls or the Commerce Department’s Bureau of Industry and Security.

But currently, the lists don’t line up.

“Who do I even go to? Unless you can answer that first question – which agency’s rules apply – you will not have a clue what your rights and obligations are,” said Larry Christensen of Miller & Chevalier Chartered.

Christensen served as director of the Commerce Department’s Regulatory Policy Division during a redrafting of that department’s export regulations in 1995 and 1996 – the first such reform since 1949.

The agencies themselves often struggle to figure out who has jurisdiction over certain exports.

“Let me just say that interagency ‘commodity jurisdiction’ discussions over the years have bordered on epic,” said Ellen Tauscher, Under Secretary of State for Arms Control and International Security, in a May 12 statement to the House Foreign Affairs Committee.

In addition to the State and Commerce Departments, jurisdiction for some nuclear items goes to the Department of a Energy and the Nuclear Regulatory Commission. Economic sanctions are enforced by the Department of the Treasury.

Cold War lingers in regulations

During the Cold War, exports generally had clear military or nonmilitary uses – and military exports were likely to be finished items – say a fighter jet – manufactured entirely in the United States and nearly entirely using American parts and systems.

In the 1980s, companies began to shift toward exporting parts and technology rather than finished goods. Under current rules, a part for a fighter or a tank might come under State Department scrutiny, even if a similar part for a nonmilitary export would fall under less stringent Commerce Department controls.

At the same time, commercial innovations began to be adapted for military use – rather than the other way around. Thus, companies might find what they assume to be a commercial item suddenly tangled in arms control regulations.

Items adapted, or even tweaked, for a military use fall on the USML and require exporters to go through a lengthy State Department licensing process. Critics of the current system say the rules don’t match the threat level.

“There’s a level of things we don’t care about and should stop caring about,” the State Department official said. “Nobody’s going to get a bolt from an F-16 and build an F-16 around it.”

The idea behind the revision is to draw a “bright line” between the two lists – that is to say, no overlap, but also no gaps where items that should be regulated fall past both sets of rules.

Agency officials say reform efforts hinge on coordination between State and Commerce, and the Department of Defense, which is overseeing the rewrite of the USML.

They also credit Gates and President Barack Obama for putting a clear emphasis on export reform – something they say was missing from past efforts.

“Other administrations have tried for 20 years, and they’ve never had as much time and attention as this one has,” a Commerce Department official involved in the process told Main Justice. “All three departments are largely humming along on the same basic page.”

In December 2010, the State and Commerce Departments published their advance notice of proposed rulemaking in the Federal Register and asked for comments from industry. This was followed in July 2011 by a proposed rule from the Commerce Department which set more details on what the list restructuring might look like.

At the same time, all 21 sections of the U.S. Munitions List are being rewritten with the goal being to improve clarity and move less sensitive items to the Commerce Control List.

Early ambitions amended

Beginning in 2009, the administration had hoped for a bolder approach.

Rather than working within the current framework, the Obama administration planned a more sweeping change to create a single control list, a single regulatory agency, a single computer system and a single enforcement agency.

Secretary Gates, who declined to be interviewed for this article, announced these ideas in April 2010 as the four key points that export reform would be built around.

Under that reform, companies would have just one place to send license applications, agency turf wars would disappear, regulators could see each other’s files and enforcement agents would be less likely to miss or duplicate investigations.

These singularities would be “phase three” of the reform effort, following consolidation of definitions, export listings and policies between agencies. Creating that one, clearly defined list would be the first major push.

“If we are able to move forward successfully to a single list, it makes perfect sense and would make no sense otherwise, to move forward with a single licensing agency,” James Miller, Principal Deputy Under Secretary of Defense for Policy, told the Foreign Affairs committee May 12.

But the ambition has been tempered somewhat, in part because such large scale reform would require action from Congress.

For now, the State Department says exporters can expect to see two lists that function more closely in unison so they know which of the current agencies to answer to. Investigations will be better coordinated through a new Export Enforcement Coordination Center, established by President Obama in November, in the Department of Homeland Security, and regulators can more easily see licensing files.

Though this is a step back from the initial concept, the agencies are adapting the basic ideas into the current system.

“It’s not an all or nothing – it could have been,” the State Department official said. “We know what the vision is, we know where we want to be — let’s start getting there.”

Even moving items from the USML to the CCL requires Congress to be notified, but its approval is not required.

Overhauls meet changing industries

Christensen said this list restructuring is crucial because the current USML offers little clarity on which items the State Department actually regulates.

This murk leaves legal holes for individuals and companies intentionally sending exports to harmful regimes. One agency may approve the export while the other does not, and if prosecutors cannot clearly point to a listing of the sensitive item on the USML, they may not have a case.

Likewise, well-meaning companies might not even know they need an export license and send shipments without government knowledge – illegally, but undetected.

In other cases, the government may know that exports are being shipped without the proper license, but the company might not know it’s broken the law.

“There are plenty of people out there in the business community that don’t realize that the vague language the government uses is intended to reach them,” said Christensen.

Currently, the State Department requires each of the 12,000 American companies that manufacture items covered by the USML to be licensed as military contractors. The cost is $2,250 yearly – and according to the State Department, 68 percent of these companies never export.

Redrafting the lists, according to the State Department, would ease this burden on companies — often small businesses — by drastically reducing the scope of items covered by the USML.

Likewise, companies that rely on international business can avoid the time-consuming USML licensing process for items better suited to the CCL. This also allows them to better compete with foreign companies not subject to such tight regulations.

“A massive amount of time and government resources are spent approving and clearing licenses that we approve 100 percent of the time,” the Commerce Department official said.

This could pose logistical nightmares for an aircraft like the F-35 Lightning II, in development in nine countries by 54 different companies.

Every single craft would have parts from the United States, and if the parts are on the USML, they would need government approval before being shipped – even if previous shipments had been approved without question.

But if the parts are on the revised CCL, they could be quickly shipped to friendly countries and still controlled everywhere else.

“It’s a way to make more efficient the supply chain with respect to close allies,” the Commerce Department official said. “U.S. companies can become regular and reliable suppliers to the allied countries.”

According to the State and Commerce Departments, final rules regarding the USML and CCL will be published by the end of the year with the new regulations to be phased in early in 2013.

This won’t mark the end of reforms but will be a watershed moment in updating complex and confusing regulations that the administration says are better suited to a military era long past.

“The United States is thought to have one of the most stringent export regimes in the world, but stringent is not the same as effective,” Gates said in his April 2010 speech. “The real-world effect is to make it more difficult to focus on those items and technologies that truly need to stay in this country.”