Export Controls: Impediments to Tech Free Trade

by on June 18, 2009 · 19 comments

I’ve spent the past couple of months interning for a large Silicon Valley technology company doing export compliance work. The company I’m working for does an enormous amount of its business overseas. And it exports, well, technology products, many of which are controlled. Laws ostensibly designed to prevent terrorism and proliferation in fact control way more than weapons and chemicals – indeed, they regulate even extremely mundane goods like servers, software with encryption, and the technical data used to design and build such products.

As a result, it has to employ large numbers of people to comply with the US’s, the EU’s, and other countries’ export control regimes. The US’s is particularly complicated, with a long list of prohibitions, some which can be circumvented if an exporter gets a license and exceptions to the licensing requirement (based on the classification of the goods, the destination country, the end-user, and the end-use). In addition, there are lists of parties – companies, universities, and individuals – with whom no company can do business. Companies that provide lots of goods and services: hardware, software, courseware for training on the products, etc., have to screen those lists many times – when a customer buys a product, when she signs up for training, when a part is shipped from a manufacturer, etc. They also have to spend lots on classifying their products and devising schemes to ensure compliance at every step in their complicated supply and distribution chains. And, because of the US “deemed export” rule, they often cannot share information with their US-based engineers who are citizens of other countries (who were hard enough to obtain visas for in the first place!).

And, yet, the US system – with all its complexity – still requires less effort than some other countries’, which require a license to export every controlled good. That entails significant delay and processing costs. Unfortunately, too little attention has been paid to these costs on doing business internationally when passing feel-good “anti-terrorism” and “anti-proliferation” laws and regulations.

As Tim Lee points out, some of the more ridiculous encryption controls have finally gone away, but as technology advances, more and more products will fall into a category (which are often based on technical performance) that requires a license. So, as American products improve, the costs of sending them overseas increases! One would think politicians supposedly worried about the trade deficit would see this as counterproductive to their goals of increasing US exports and reducing imports… but that’s politics!

  • http://techliberation.com/author/berinszoka/ Berin Szoka

    The U.S. has not one system of export controls but several. You focus on the Commerce Control List of “dual use” items administered by the Commerce Department's Bureau of Industry & Security (BIS) under the Export Administration Regulations (EAR). The EAR may not be fun, but it's a walk in the park compared to State Department's International Traffic in Arms Regulations (ITAR), which applies to militarily sensitive technologies covered by the U.S. Munitions List (USML). In theory, the USML is supposed to be things like tanks, bombs and nerve gas, but unfortunately, it also covers essentially all space-related technologies, including not only launch vehicles (most of which closely resemble missile technologies), but satellites and anything else related to a space mission. It is an utter nightmare, especially for smaller, commercial NewSpace companies.

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  • http://www.Trade-Compliance.org/ Trade-Compliance.org

    Good job explaining the complexity of export controls in a short space! And thanks for bringing some info about export compliance into the open. Sometimes it seems like its own little world! What are your thoughts on the TRADE Act?

  • http://www.Trade-Compliance.org/ Trade-Compliance.org

    Good job explaining the complexity of export controls in a short space! And thanks for bringing some info about export compliance into the open. Sometimes it seems like its own little world! What are your thoughts on the TRADE Act?

  • http://www.Trade-Compliance.org/ Trade-Compliance.org

    Good job explaining the complexity of export controls in a short space! And thanks for bringing some info about export compliance into the open. Sometimes it seems like its own little world! What are your thoughts on the TRADE Act?

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