E-Mails, Servers and Software: U.S. Export Controls for the Modern Era

Abstract:     
Over the past twenty years, enormous technological, economic, and political changes have transformed the U.S. economy and the application of U.S. export controls. Technological advances in recent years, for example, have revolutionized both the types of commercial products available and the ways in which they can be exported. Software and technical data have become articles of commerce in their own right, and because they are non-physical items they can be exported electronically by e-mail and server downloads.

Over the same time period, many of the world's economies have grown more interconnected in terms of trade, investment, and personnel, and foreign direct investment levels have surged. As a result, international business is now characterized by an enormous volume of transborder internal company activity.

In terms of political change, the world's political order has been dramatically restructured due to the end of the Cold War and the People's Republic of China's (PRC) inexorable shift toward market economy principles. With the world's geopolitical structure no longer bipolar in nature, traditional U.S. export controls based primarily on the country of destination have become less important (with embargoed countries such as Cuba and Iran being notable exceptions) and certainly more difficult to apply than in the past. Stated differently, during the Cold War it was far easier to determine what export destinations (such as Soviet bloc countries or the PRC) were undesirable for U.S. national security purposes. However, since the end of the Cold War it has become more difficult to ascertain whether exports to these (or other) destinations are problematic based solely or primarily on the destination in question.

An important result of these technological and economic developments is that activities defined under U.S. law as exports have increased exponentially, far in excess of economic growth. Certainly the largest increase has been in non-physical exports of technology and software. Furthermore - and of key importance to maintaining an effective national system of export controls for commercial items - exports are not limited to business transactions. Rather, exports can include such activities as inter-company shipments, as well as internal company communications that send technology or software abroad - or in some cases even convey it domestically to a national of a foreign country. Depending on the circumstances, Internet postings of software also can be considered exports. As a result, the current level of non-physical exports is extraordinarily high.

Yet despite these revolutionary changes, the basic structure of U.S. export controls on commercial items has remained unaltered for decades, and the United States continues to rely on a Cold War era statute as the basis for commercial export controls. This statute - the Export Administration Act of 1979, or EAA - is outdated and badly in need of reform, and in fact there has been animated discussion in recent years over what a new EAA should look like.

To date, however, this debate has ignored the controls' most fundamental structural aspect: that they invariably look to individual export transactions as the events to be regulated. The regulation of individual export transactions is so embedded in the current U.S. system of export controls that many observers see it as an indelible feature of the export control landscape. To be sure, it is a conceptually straightforward approach that worked well in previous decades, but the application of this approach to today's large volume of non-physical exports results in an export control system that focuses too much on the mechanism for control and not enough on the reasons for which these controls were implemented. In short, form threatens to supersede substance, and the system meets neither the EAA's expressly stated goal of facilitating trade nor its primary goal of promoting U.S. national security objectives by prohibiting problematic exports.

In order to meet these two seemingly incompatible goals, this article recommends that U.S. commercial export controls focus primarily on the identity of the exporter and the scope of the exporter's export activities, and only secondarily on the exporter's specific export transactions. This account-based approach to export controls would help reduce many current export compliance difficulties faced by U.S. exporters, especially those engaged in non-physical transactions, by deemphasizing the often artificial and burdensome focus on discrete export transactions and thus helping to facilitate exports by reducing transaction costs. At the same time, an account-based approach also would accurately reflect activities taking place in international commerce and allow them to be vetted for the end user and end use concerns that have become so important to U.S. commercial export controls, thus addressing U.S. national security concerns.

The account-based approach could be implemented in one of two principal ways. First, and ideally, the current statutory structure of U.S. commercial export controls could be revamped to implement this approach. Similar changes could be made to foreign nations' commercial export control laws and to multilateral export control regimes in which the United States and many of its primary trading partners participate. Alternatively, the account-based approach could be implemented through modifications to the existing regulatory structure, even absent any modifications to the existing (and less than optimal) statutory framework for U.S. commercial export controls. Such an approach would be an interim solution, but certainly a positive step in the right direction - and in fact, such an approach arguably would be more consistent with what is already occurring on a de facto basis under U.S. export control laws for commercial items.

Keywords: Export Controls Technology, International Business

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