DATE: October 28, 2009 SUBJECT: NCITD Meeting of October 14, 2009

Transcription

1 DATE: October 28, 2009 SUBJECT: NCITD Meeting of October 14, 2009 This memorandum summarizes the presentations and discussion at the National Council on International Trade Development ( NCITD ) Trade Compliance Committee Meeting held in Washington, D.C. on May 13, Comments are in [square brackets]. The principal author within MK Technology was Gus Anifantis. Kay Morrell, Esq. and Terence Murphy reviewed under standard procedure. I. Off-the-Record Comments by Mr. Ryan Cathie, Mr. Jay P. Nash, and Mr. Clarence Smith, Center for International Trade and Security at the University of Georgia These representatives of the Center for International Trade and Security (CITS) at the University of Georgia presented an overview of export controls and industry compliance in China, Japan, and Singapore. [A copy of their slide presentation is included with this report.] Mr. Jay Nash, the Director of CITS East Asia Projects began the presentation by discussing the 20 year history of CITS in export control research, analysis, training and education. He noted that they work with more than 75 export control systems from every continent with a significant ongoing focus on East Asia. Discussing Asian controls in a general regional context, he noted that many countries are both major importers and exporters of strategic goods and technologies with high trade volumes, long maritime borders and many regional and conflict flash points. There is both terrorist and transnational criminal activity and their export control systems vary from advanced to practically non-existent, with controls continuing to expand in more developed countries. There are increasing industry outreach and compliance promotion efforts by regional governments and authorities with increasing international and intraregional engagement, but less development in technology transfer controls and controls on dual use items. States in the region are concentrating on the U.S. export control system with numerous discussions on what should be controlled in

2 Page 2 the region, with a particular focus on Weapons of Mass Destruction (WMD) based controls. Japan Mr. Cathie, who joined the CITS staff in 2006, has provided briefings for U.S. Government officials and industry groups on Japanese and East Asia export controls, and has participated in several training programs for foreign export control officials. He has also worked at the Center for Strategic and International Studies in the International Security Program. In regard to the Japanese strategic control system, important changes are scheduled to take place on November 1 regarding additional controls on tangible and intangible transfer of technology (ITT) to residents and non-residents alike both in Japan and abroad. In April of next year the Japanese Government will require a mandatory internal compliance program for countries trading in sensitive items. He noted the imposition of the WMD Catch-all authority in 2002 and its expansion for military items in November of 2008 with an important exemption for 26 White Countries including Argentina, Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Republic of Korea, Luxemburg, Netherlands, New Zealand, Norway, Poland, Portugal, Spain, Sweden, Switzerland, the United Kingdom, and the United States. The same list of exempted countries is in place throughout the Japanese Strategic Trade Controls. Transshipments of dual-use goods destined for one of these countries do not require a license and dual-use goods moving from one to another of these same countries are also exempt from controls on brokering. Citing a recent government-sponsored review of export control violations, Mr. Cathie cited the finding that 88 percent of the violations were described as unintentional and he described Ministry of Economy Trade and Industry s (METI) limitations in policing all of Japanese industry, including its lack of technical capacity. As a result, he noted the increasing reliance on the private sector and Non-Governmental Organizations (NGOs) to enhance greater export control awareness and best practices. He noted that the Center for Information on Security Trade Controls (CISTEC) has assumed a particularly important role responding to questions about the technical specifications of strategic goods and technology, providing assistance with regard to commodity classifications, holding pre-export consultations for exporters, and developing model internal compliance programs for exporters. He also noted that there are now some 70 part-time Security Trade Control Examiners from industry and academia with requisite export control expertise; and the Ministry of Education, Culture, Sports, Science and Technology (MEXT)

3 Page 3 has been enlisted to inform professors and foreign students on transfer of technology and deemed export issues. While only a small percentage of export control violations are intentional, involving a conscious effort to avoid controls and evade detection, recent violations have received greater scrutiny and press attention, including the export of precision measuring devices to subsidiaries in China, Thailand, and Malaysia, with ties to the Khan network (MTO Corp. in 2007) and the illegal export of machine tools to the Republic of Korea with suspected re-export to the Democratic People s Republic of Korea (HKS Corp. in 2008). The response from the government has been a mix of increased fines and administrative penalties particularly in regard to violations of brokering and transshipment controls as well as an even greater reliance on industry outreach. Civil and criminal penalties can include up to five years imprisonment and/or fines up to 2 million yen (approximately $17,500 US) or five times the value of the goods in question. For administrative offenses, the maximum penalty is suspension of trading privileges for three years. In some cases, METI will simply issue a warning against violators. Mr. Doug Jacobsen, one of the members of NCITD, stated that in his experience the number of enforcement cases per year pursued in Japan was less than ten, similar to the enforcement case load handled each year in the United Kingdom. In June of 2009, Japan temporarily prohibited the export of all goods and all brokering activities to North Korea, until April of By January of 2010 Japan will update its control list to include items such as turboprop engines, raw material for semiconductor IC boards, and equipment for invalidating improvised explosive devices (IEDs). Increased controls in regard to technology transfers will be put in place on November 1, to the extent that transfers of items with a potential national security concern will require a license when they leave the country even if they remain in the custody of a Japanese resident. Mr. Cathie pointed to other changes which might take place, including arms export prohibitions in regard to ballistic missile development with the United States, where Japanese defense industries are facing rising Research and Development costs, budget constraints, and a limited domestic market. In addition, consideration is being given to expanding broker controls, to include leased goods, and restructuring the classification system to bring it in harmony with the United States ECCN system. Industry outreach has also been accorded a broader focus, with renewed emphasis on public-private partnerships. Other pending changes are in the area of license exemptions for intra-company transfers with overseas affiliates. While still under public comment, the Special

4 Page 4 Subsidiary Bulk Export License will likely cover Nuclear Suppliers Group, Missile Technology Control Regime, Australia Group, and Wassenaar Arrangement controlled items, except for very sensitive items in high-risk countries. This license would not be applicable for foreign companies in Japan. For Japanese companies trading in sensitive items, they must demonstrate that they have internal compliance programs in place, effective April 1, Enhanced documentation requirements are now being considered; extending the retention period to seven years for WMD items and to five years for all other items. China Mr. Nash is the Director of the CITS East Asia Projects and has provided several briefings and presentations on export control developments and issues in East Asian countries for U.S. government agencies and industry. He is a participant in the U.S.-China High Technology Working Group and a frequent speaker at the Asian Export Control Seminar held each year in Tokyo. Mr. Nash summarized some of the key developments in China s export control system, commenting on the considerable progress it has made over the past eight to ten years and on its remaining differences with some international export control standards. While there is no overarching national export control law in China, the Foreign Trade Law from 2004 provides the primary legal basis for export control with numerous item-specific regulations and measures passed by the State Council. The Ministry of Commerce (MOFCOM) requires the registration of all exporters and approves export permits for all items on the China Dual-Use Control Catalogue; updated annually since 2004, where all items are combined from individual control lists and Harmonized Tariff Schedule-based classification codes. In so far as China is not a member of the Wassenaar Arrangement, many conventional dual-use items are not subject to control. And not surprisingly, it has gone the farthest in harmonizing its nuclear and chemical controls with the lists maintained by the Nuclear Suppliers Group and the Organization for the Prohibition of Chemical Weapons in light of China s active membership in these two organizations. Owing to its non-membership in the Missile Technology Control Regime, the items listed in its Regulations on Missile Exports are at variance with those listed in the MTCR Annex. All license applications must now be submitted electronically and the exporter needs to apply to his local MOFCOM office which issues the license after close consultation with the central office in Beijing. China imposes controls on imports, exports, and extra-territorial re-exports and re-transfers. It includes both listbased and catch-all controls, transit and transshipment controls, and some technology transfer controls.

5 Page 5 Administrative resources are stretched thin with some ten licensing officers overseeing upwards of 10,000 applications per year. Classification responsibility is not clear in all cases and MOFCOM can supply assistance if needed. One of the most recent noteworthy developments has been the introduction of a General Licensing Scheme in May of this year. Two options are available: Group A (Universal) license with multiple destinations and multiple endusers Group B license with a single country destination and a specific end-user To be eligible for the universal license scheme, companies must be registered, have no export violations for three years, have the same sales channels and end users, and have a MOFCOM-certified internal compliance program. China requires end-user guarantees for many approved licenses and no transfer provisos for imported items and technologies without consent of the Chinese government. In addition, China maintains a denied parties list but it is kept internally and is not publicly available. A number of special controls are in place for certain technologies. Some technologies are subject to a separate control regime. While MOFCOM is the sole licensing agency for restricted technologies, that agency together with the Ministry of Science and Technology publish a catalogue of any restricted or prohibited technologies. It includes several dual-use aerospace, chemical and industrial technologies. In addition, China maintains Protections of State Secrets, or Bao Mi, laws prohibiting the transfer of some technologies. It has also recently introduced new regulations on foreign encryption coming into the country. In the export control enforcement area, MOFCOM is joined by several other agencies, including the General Administration of Customs, the Public Security Bureau, and the Ministry of State Security. While there is a full range of civil, criminal, and administrative penalties for export control violations, only a handful of enforcement actions have been undertaken since Penalties include fines, confiscation of illicit proceeds or property, imprisonment, and denial of trade privileges. Company self-disclosures of export control violations have yet to be encouraged or otherwise recognized. There a number of NGO resources for industry including four Chinese Universities with export control-related programs, industry organizations and associations, and Chinese think-tanks such as the China Arms Control and Disarmament Association (CACDA). Over the past several years, several Chinese companies, including China Great Wall Industry Corporation and Norinco, have developed their internal compliance programs, related websites, and corporate compliance statements. According to Mr. Nash it is difficult to get

6 Page 6 full verification of all the screening and compliance functions in these and other companies. The Hong Kong Export Control System is separate from that of China, with minimum coordination with the mainland. It is fairly comprehensive and divided into four schedules, including WMD provisions and a conventional catch-all. There is no form of deemed export control. In sum, the Hong Kong Special Administrative Region system is more advanced, while some gaps remain in the areas of enforcement and industry outreach. Singapore Mr. Clarence Smith joined the CITS Washington D.C. office in August of 2008, and has conducted briefing for U.S. and foreign government officials on the South Korean and Singaporean strategic trade control systems. He spoke very briefly about Singapore s Strategic Trade Profile. A key transit and transshipment hub in Southeast Asia, it has a good balance between trade facilitation and a robust strategic trade controls system. Licensing and enforcement authorities are centralized within Singapore Customs. Controls are maintained on re-exports of WMD sensitive dual-use items although they do not apply to extra-territorial re-exports. Controls are also maintained on intangible technology transfers. Enforcement branches include Singapore Customs Strategic Goods Control Branch, the Immigration and Checkpoints Agency, the Defense Science and Technology Agency, and the Singapore Police. Penalties for violations regarding exporting, transiting, or transshipping of controlled items or technology include fines of up to $100,000 (Singapore dollars) or three times the value of the export and a prison sentence of up to two years. A second offence doubles the amount of the maximum fine and could mean a prison term of up to three years. Singapore s outreach efforts include TradeNet, Strategic Trade Scheme, and the Secure Trade Partnership as well as other industry outreach events. In sum, Singapore s Strategic Trade Controls system is comprehensive, transparent and streamlined. The system rewards greater degrees of internal compliance with faster and less cumbersome licensing. The biggest enforcement challenge is managing the high volume of transit, transshipment and re-exported items and the lack of deemed export controls presents a potential for the export of strategic technology. In a summary presentation, Mr. Nash noted the robust evolution of export controls throughout the region and concluded that approaches to export controls are distinct from the United States/European Union approaches in many areas.

7 Page 7 II. Off-the-Record Comments by Mr. Justin Friedman, Director, Office of Export Control Cooperation, International Security and Nonproliferation Bureau, U.S. Department of State Mr. Friedman addressed NCITD regarding the Export Control and Related Border Security (EXBS) Program. [A copy of his slides is included with this report.] He welcomed the opportunity to discuss the full range of the State Department s export assistance program and promised to increase the level of cooperation and understanding between industry and government in the promotion of industry best practices and the development of world class export control systems in EXBS partner nations. The Five Pillars of the EXBS approach include the development of: Comprehensive legal and regulatory frameworks in partner nations Effective licensing procedures and practices Enforcement techniques and equipment Government outreach to industry Interagency coordination Since its founding in the early 1990s, EXBS has sponsored bilateral and regional cooperation programs worth some $400 million, in more than 60 countries around the world, with over 1,472 technical exchanges and workshops to date. Key goals also include the exchange of information on export control and border security best practices and the development of capabilities in each partner country to detect, interdict, and investigate illicit transfers of WMD materials or technology. Mr. Friedman described the development and implementation of export licensing software, the Tracker licensing system, for each partner country and its ability to process and manage inter-agency tasks and industry-government interfaces, including the fully electronic filing and processing of all license applications. Much of the EXBS assistance is provided in the form of non-intrusive border inspection equipment and the development of techniques and capabilities designed to stop illicit cargoes. He described in particular the provision of special equipment to the Kosovo Customs Agency enabling their Customs agents to detect ammunition being smuggled across their borders for possible use by terrorist groups. He stressed that the EXBS Program is looking for government to government partnerships that can be a win-win for both parties, where strengthening customs controls and monitoring capabilities promotes national security for the partner nations and the overall objectives and global norms of United Nations Security Council Resolution He noted as well that his program is also seeking ways

8 Page 8 to enhance greater cooperation with industry to help identify gaps in their systems and as a source of expertise, best practices and as role models for partner nations.

9 Export Controls And Compliance In East Asia: Updates and Implications Presentation for National Council on International Trade Development (NCITD) October 14, 2009, Washington DC

10 Presentation Outline 1. CITS/UGA Background and Perspective 2. Regional Context, Themes, And Trends 3. Japan s Export Controls 4. Mainland China and HKSAR 5. Singapore and Southeast Asia 6. Concluding Observations

11 CITS/UGA Background And Perspective 20+ year history of objective export control research, analysis, training, and education Work with more than 75 systems from every continent; Increasing engagement with industry communities and issues Significant experience in, and ongoing focus on, East Asia

12 Regional Dynamics And Context Both major importers and exporters of strategic goods and technology High trade and through put volumes Challenging terrain and long maritime borders Regional tensions and conflict flashpoints Terrorist and transnational criminal activity

13 Regional Export Control Trends Varying degrees of system development; from advanced to nonexistent Controls continue to expand in the more developed systems Increasing industry outreach and compliance promotion efforts by regional governments and authorities Greater international and intraregional engagement Source: CSCAP website < %20Guidelines%20for%20Managing%20Trade%20of%20Strategic%20Goods.pdf> Not much development in tech transfer controls and controls on conventional dual use items

14 Presentation Outline 1. CITS/UGA Background and Perspective 2. Regional Context, Themes, And Trends 3. Japan s Strategic Trade Controls 4. Mainland China and HKSAR 5. Singapore and Southeast Asia 6. Concluding Observations

15 Summary of Japan s STC System Principal Legal Basis Foreign Exchange and Foreign Trade Law Primarily targeted towards "dual use technologies" (no export of weapons) Licensing Authority Ministry of Economy, Trade and Industry (METI) Security Export Licensing division issue licenses. Secondary Legislation: 1. Export Trade Control Order denotes controlled goods. Attachment List 2. Foreign Exchange Order denotes controlled technologies & software. Control lists consistent with the MECRs 15 categories + catch all cat. Controlled items incorporated into a finished product are not subject to control if they comprise less than 10% of the final product value or cannot be removed from the finished good.

16 Advanced Controls Military and WMD Catch all informed or known condition (2002) Military catch all institutednovember cases of (WMD) informed catch all control invoked January to June The WhiteCountry Exception the following 26 countries are not subject to Japan s WMD Catch all: Argentina, Australia, Austria Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, ROK, Luxemburg, Netherlands, New Zealand, Norway, Poland, Portugal, Spain, Sweden, Switzerland, UK, and USA ITT & Deemed covers transfers in Japan or abroad Transfers of controlled technologies only require a license when destined for a non resident or under Catch all control. New ordinance passed in June applies expanded controls on tangible and intangible transfers of technology (ITT) to residents and non residents both in Japan and abroad. Active NOVEMBER 1, 2009.

17 Other Advanced Controls Transshipment Controls June 2007 Arms arms listed in Category 1 require a license to be transshipped through Japan Dual use a license is required if METI informs the trader or the trader knows the items will be used in WMD development. Brokering Controls June 2007 Arms all arms related goods listed in Category 1 require a license. Dual Use a license is required if METI informs the trader or the trader knows the items will be used in WMD development. White Country Exemption for Transshipments and Brokering Transshipments of dual use goods destined for one of the 26 White Countries do not require a license. Dual usegoodsmovingfromortooneofthe26 WhiteCountries are exempt from brokering controls.

18 Three Principles On Arms Exports Policy developed in 1967 and strengthened in 1976 & 1981 Prohibits arms exports to: Communist bloc countries and countries subject to UN arms embargoes Countries involved or likely to be involved in international conflict Expanded in 1976 to include arms production equipment and related technologies. Category 1 arms exports are prohibited except for return shipments of foreign military equipment for repair or replacement OR for collaborative government to governmentagreements. Non listed items are also prohibited for export if they have a military end use (Military end use catch all control). There has been a push in recent years by industry to amend these prohibitions.

19 Arms Exports: Subject Of Debate Japanese defense industries faced with high R&D costs, budget constraints, & limited market. Many believe that export would lead to higher performance weapons systems and strengthening of bilateral security arrangement with US (interoperability with the US TMD cooperation) Since 1983, there have only been 13 instances in which Japan provided the US with defense technology. (portable G to A missiles) February 2009 the Democratic Party of Japan (DPJ) calls for a policy review of Japan s arms export prohibitions by the Diet. Liberal Democratic Party (LDP) proposed relaxing the nation's three principles on weapons exports by the end of August 2009 Japanese government panel submitted a report to Prime Minister Taro Aso calling for a relaxation of the arms export ban.

20 Japan To Relax Arms Export Prohibitions May 2009 Nikkei announces that Japan will relax arms export prohibitions LDP recommendations: (1) proposes to establish policies and procedures for the export of arms and related technologies to the countries that are not (i) state sponsors of terrorism, (ii) subject to UN arms embargo, (iii) engaged in armed conflict, and are implementing strict export controls. Paragraph (2) calls for further revisions to allow joint R&D of military equipment and to reconsider the definition of "arms. This is not a legal change per se, it will be considered an internal policy change and the export licensing process. August 2009 DPJ wins elections direction on XC reform not fully known??? LDP traditionally more business friendly party in Japan

21 Japan s Strategic Export License Types LICENSE TYPE Individual Export License CHARACTERISTICS CONDITIONS VALIDITY VERY sensitive items incl. NSG Part I, precursor chemicals, viruses, conventional arms, some MTCR items, catch all items Might require an EUC, METI approval for re export or other conditions 6 months, but exporters can apply for renewal prior to license expiration Bulk Export License LESS sensitive dual use goods and technologies to countries with firm XC systems Exporter must institute an ICP, attend METI seminar and allow spot inspections 3 years, but may be renewed Special Bulk Export License SELECT dual use items based on continuous trading relationship, NSG Part 2, CB equip, some MTCR and WA items ICP, annual reports and spot inspections 2 years, but may be renewed

22 Possible License Exemptions 1. Low Value goods license is not required for controlled items if the value is equal to or less than 1 million yen, or 50,000 yen, depending on the final destination and sensitivity of the item. Subject to end use controls. 2. Cryptography exports containing controlled cryptography are not subject to licensing requirements, under certain conditions. 3. Technology or software in the public domain or basic scientific research. 4. Technology associated with an export of goods does not exempt software 5. Supplies for vessels or aircraft to be used for foreign vessels or aircraft; aircraft parts to be used for the safe arrival and departure or navigation of aircraft and related parts, in need of repair. 6. Category 16 (catch all) items destined for White Countries

23 Enforcement: Penalty Types Violators of Japan s STC are subject to civil, criminal and administrative penalties. Civil and Criminal Up to 5 yrs imprisonment and/or fines up to 2 million yen (~$17,500) OR 5x the value of the goods in question, if in excess of 2 million yen Administrative less serious offenses Maximum 3 year suspension of trading privileges In some cases, METI will simply issue a warning against violators and publicly announce the warning.

24 Recent Notable Violations YMC Corp. (2005) Sale of UAVs to Poly Technologies Inc and BVE Technology Co (PRC) Fine of 1 million yen. Yamaha did not proactively violate the law MTO Corp. (2007) Illegal exported 5 precision measuring devices to subsidiaries in China, Thailand and Malaysia with ties to the Khan network; four executives convicted HKS Corp. (2008) illegally exported dual use machine tools to ROK that may have been re exported to DPRK. Understated the specifications to circumvent XCs

25 Japanese Government Response March 2006: METI announces decision to conduct spot inspections of strategic traders May 2006: Announce plans to strengthen Japan s STC with a renewed focus on industry outreach June 2007: Brokering and Transshipment controls instituted and record penalties administered to violators November 2008 Japan institutes military catch all controls

26 Enhanced Tech Transfer Controls Current Japanese export controls on technology transfers apply only to transfers from a Japanese resident to a non resident. Under the new regulations, effective 1 November 2009, technology transfers of items considered a potential threat to national security will be subject to a license requirement whenever moving across the border, even if at that time they are in the possession of a Japanese resident. June 2009: enhance controls over deemed transfers / academia Applies to foreigners and Japanese nationals, in Japan and abroad 15 research fields identified must establish body to monitor information transfers. (Research institutions and academia) Outreach by Ministry of Education, Culture, Sports, Science and Technology (MEXT)

27 Industry Outreach METI has been encouraging voluntary ICP for 20 years Present ICP advantages Fast Track License Review and Bulk License eligibility New ICP requirement will allow all strategic traders to apply for bulk licenses Institutions dedicated to industry outreach METI Security Trade Inspection Office is charged with industry outreach efforts 70 part time Security Trade Control Examiners from industry and academia are utilized for their technical expertise. Ministry of Education, Culture, Sports, Science and Technology (MEXT) ITT and Deemed (New focus) educating academic professors, foreign students

28 Industry Outreach (cont d) Additional resources available to industry Preliminary export consultations (approximately 200 annually), Internet websites for METI and CISTEC, informational pamphlets, phone consultations, exporter seminars. To assist traders, Japan has developed : Guidelines for Judging When Apparent Catch All assistance End User List (223 business and orgs with suspected ties to WMD development) Commodity Watch List (List of 40 items with high risk of diversion)

29 Role of Japan s Private Sector And NGOs Increased reliance on the private sector CISTEC, JAIST, JETRO, and JMC METI often lacks technical capacity Center for Information on Security Trade Control (CISTEC) CISTEC compiles industry opinions, provides industry literature, organizes seminars, and addresses inquiries regarding the technical specifications of strategic goods and technology. CISTEC Exporter Guidelines and Parameter Sheet assistance with commodity classification CISTEC s Model ICP Increased emphasis on compliance / ICP both Japan and regionally Seminars and Outreach CISTEC dispatched experts 51 times, held 12 exporter seminars and consulted with industry on 900 individual export cases (2007) Corporate certification program STC Experts and Associate Exams

30 Other NGOs And Industry Associations Japan Association of International Security and Trade (JAIST) promote export control awareness for overseas Japanese subsidiaries. Members from industry, academia, and government conduct STC R&A and hold workshops for Japanese subsidiaries abroad 2x/year. Japan Machinery Center for Trade and Investment (JSM) annually compiles and publishes control list and relevant regulations. Japan International Cooperation Agency (JICA) JICA has held export control seminars throughout Asia for front line officials in order to strengthen regional STC systems. Part of Japanese effort to strengthen regional STC systems. Cooperation with others such as the Japan External Trade Org (JETRO) and the Japanese Chamber of Commerce (JCC)

31 Recent Actions June 2009 Prohibition on exports and brokering of ALL GOODS to DPRK until April July 2009 Japanese company receives criminal, civil, and administrative sanction Y 47 million, 1 to 2 year prison, and 5 month total export ban Update control list by January 2010 to include items such as: turboprop engine and equipment, advanced raw material for semiconductor IC board, and equipment for invalidating IEDs, etc.

32 Recent Changes Enhanced penalties were an ineffective deterrent. INCREASED PENALTIES Prison sentences for WMD violations will be doubled to a max of 10 yrs. The amendment ups fines from 2 million to 10 million yen, or five times the value of the items exported. Enhanced controls on technology and deemed transfers. Active 1 Nov 2009 Mandatory ICP for Japanese cos. Active 1 April 2010 Mandatory ICP for companies trading in sensitive items. Draft level Document retention period will be extended to 7 yrs for WMD items 5 yrs non WMD

33 Recent Changes (cont d) License exemption for intra company transfers with overseas affiliates. This new inter company bulk license is still in draft level, under public comment until October 27, "Special Subsidiary Bulk Export License" will likely cover NSG, MTCR, AG and WA controlled items, except very sensitive items and certain high risk countries. Subsidiary Bulk Export License will be for 100% Japanese owned parent company to export to overseas subsidiary which they have greater than a 50 percent stake. NOT applicable for foreign companies in Japan. Export compliance training and annual audit is mandatory for subsidiary bulk license.

34 Other Changes Ahead? Relaxation of Three Principles and Arms Export Prohibitions, likely? Japanese defense industries faced with high R&D costs, budget constraints, & limited domestic market. TMD development with the US Restructure the classification system? Currently divided b/w goods and technologies (16 categories) and unique numbering system doesn t correspond to HS or ECCN. Japan wants to harmonize with the ECCN. Expanded brokering controls to include leased goods Still to be triggered by end use and White Country exempt.

35 Summary Points And Implications Violations have brought forth many necessary changes to Japan s STC system Still no transit controls (std. customs controls) Transshipment and brokering controls are not comprehensive ( white country exemptions, end use trigger) WA Conventional Dual use items only regulated by catch all Industry outreach has broadening focus in Japan Move toward awareness building for SMEs, academia, and emerging technologies Effective public private partnership used to conduct industry outreach in Japan

36 Presentation Outline 1. CITS/UGA Background and Perspective 2. Regional Context, Themes, And Trends 3. Japan s Export Controls 4. Mainland China and HKSAR 5. Singapore and Southeast Asia 6. Concluding Observations

37 Legal Framework For China s XCs No overarching national export control law in China Foreign Trade Law (amend. 2004) is primary legal basis for export control Criminal Law and Customs Law also contain export control related provisions Discussions of national export control law ongoing Item specific regulations and measures Regulations on Controlled Chemical Export (1995) Measures on Chemical Related Equipment Export (2002) Regulations on Missile Export (2002) Regulations on Biological Dual Use Export (2002) Regulations on Arms Export (2003) Measures for Dual Use Export Licensing (2005) Regulations on Nuclear Export (2006) Regulations on Nuclear Dual Use Export (2007)

38 Export Control Licensing Agencies AGENCY Ministry of Commerce (MOFCOM), Department of Electromechanical Industry, Export Control Division II Ministry of Industry and Information Technology, State Administration for Science and Technology in National Defense (SASTIND) Ministry of Industry and Information Technology, China Atomic Energy Agency (CAEA) LICENSING ROLE Issues document of approval for all dualuse items; approves export permit for all items on the China Dual Use Control Catalogue Licenses arms and military equipment Issues document of approval for all nuclear exports (reactors, fissile materials) National Development and Reform Commission, Chemical Weapons Convention Implementation Office (CWCIO) Issues document of approval for all CWC chemicals Ministry of Foreign Affairs (MFA), Central Military Commission (CMC), and the State Council Approval may be required for exports of major military equipment or that may have other political sensitivities

39 MOFCOM Export Control Website Source: MOFCOM website, October 2009, <

40 Types Of Controls In China Controls on imports, exports, and extra territorial re exports and re transfers Both list based and catch all controls ( know or should know standard) Transit and transshipment controls Some technology transfer controls, but currently no deemed Both general and specific licensing Most comprehensive controls in the area of nuclear and chemical Many conventional dual use items not subject to control

41 China s End Use(r) Controls Where the exporter knows or should know that the missilerelated items and technologies to be exported will be used by the receiving party directly in its program for developing missiles and other delivering systems listed in the Control List that can be used to deliver weapons of mass destruction, the export shall be subject to the provisions of these Regulations even if the items or technologies are not listed in the Control list. Article 16 in the Missiles Export Control Regulations (2002) End user guarantees that go along with export license: Not to use the imported items and technologies for purposes other than the declared end use Not to transfer the imported items and technologies to any third party other thanthe declared end user without consent of the Chinese government

42 National Control Lists Lists established by and annexed to various export control related regulations and measures Nuclear and Nuclear Dual Use Control Chemical and Chemical Related Equipment Biological Dual Use Missile Arms and Military Products Similar to MECR lists, but several discrepancies, especially with WA lists Dual Use Control Catalogue Issued and updated annually since 2004 Combines all items on individual control lists into one catalogue 8+2 HS based classification codes for approx. 80% of entries

43 China s Dual Use Control Catalogue Source: MOFCOM website, October 2009, <

44 Dual Use Export License Process General All license applications must now be submitted electronically Apply to local MOFCOM office (if in Beijing, then directly to Central MOFCOM) Classification responsibility not 100% clear, exporter should attempt, can seek assistance from MOFCOM if needed Process 1. Apply and register to become exporter of dual use items 2. Obtain document of approval from appropriate government agency (agencies can have up to 45 days to review) 3. Submit all materials electronically to local MOFCOM Office 4. Local MOFCOM office does initial review and forwards to Central MOFCOM 5. Central MOFCOM Office reviews (sometimes in consultation with other agencies or committee of experts); days average 6. Central MOFCOM returns to local office, which then issues licenses

45 Missile Related Licensing Process Source: MOFCOM e Platform, October 2009, <

46 New General Licensing Scheme Introduced in May 2009 by MOFCOM after several years of study and consideration Two options available Group A ( Universal ): multiple destinations, multiple endusers, and multiple items Group B: single destination (country), specific end user, but multiple items For universal scheme, companies must be registered companies with MOFCOM certified ICP, no export violations for three years, and with the same sales channels and end users

47 Special Controls On Technologies Certain technologies are subject to a separate control regime that is specifically for restricted and prohibited technologies Ministry of Science and Technology (MOST) and MOFCOM publish catalogue of restricted and prohibited technologies; MOFCOM is licensing agency for restricted technologies Several dual use technologies are included on the recently updated list of technologies restricted and prohibited for export, including certain aerospace, chemical, and industrial technologies China also has Protection of State Secrets or bao mi laws and regulations that prohibit transfer of certain technologies China has introduced new regulations on foreign encryption coming into the country, administered by State Encryption Management Commission (SMEC)

48 China XC Enforcement Export Control Enforcement Agencies: MOFCOM, Export Control Division II General Administration of Customs (GAC), Legal and Anti Smuggling Divisions Public Security Bureau (PSB), Economic Crimes Division Ministry of State Security (MSS) Customs Powers Customs can inspect, detain, seize, and seek classification from MOFCOM Customs jurisdiction limited primarily to customs zones and bonded operators premises; greater powers in cases of import Customs powers expanded significantly over course of 2008 Since 2004 there have been a handful of publicized enforcement actions

49 Penalties For XC Violations Civil Fines between 50, ,000 RMB Confiscation of any illicit proceeds or property Criminal If violation of Criminal Code or smuggling provisions of Customs Code Can include jail sentences Administrative Revocation of licenses Denial of trade privileges

50 Government XC Resources For Industry MOFCOM Notice No. 69 (2007) on Guidance for Industry Export Control Compliance Outlines government policy and party responsibilities Provides basic guidance on ICP development Export Control and Compliance Seminars Approx per year Often industry or region specific Electronic Export Control Platform < Informal Pre License Consultations

51 MOFCOM Electronic XC Platform Source: MOFCOM website, October 2009, <

52 NGO Resources For Industry Chinese think tanks such as the China Arms Control and Disarmament Association (CACDA) < Industry organizations and associations China Chamber of Commerce for Machinery and Electronics (CCME) < Controlled Chemical Association of China Chinese Universities with export control related programs Fudan University (Shanghai) Tsinghua University (Beijing) China Foreign Affairs University (Beijing) China Customs College (Shanghai)

53 Industry XC Awareness And Compliance Source: CGWIC website,october 2009, <

54 Industry XC Awareness And Compliance Source: NORINCO website, October 2009, <

55 HKSAR XC System Overview Separate from, and not great degree of coordination with, mainland Fairly comprehensive system, control list in line with MECR lists, divided into four schedules ; recently updated in February 2009 WMD catch all provisions and reportedly some form of conventional catch call Some differences and potential gaps in transshipment and brokering controls, currently do not appear to employ any form of deemed export control Pre classification services offered; more industry outreach may be needed

56 Developments In HSKAR Export Control 1. Establishment of Approval in Principle Arrangement for bulk licensing 2. Issuance of guidance on trade in US origin items 3. Continuation of annual reporting and permit requirement for trade in scheduled and certain unscheduled chemicals 4. Continuation of Air Transshipment Cargo Exemption Scheme 5. Import and Export (Amendment) Ordinance of 2007 Director of Trade can issue any regulations to require submission of information relating to any cargo coming into or going out of HKSAR

57 HKSAR XC Prosecutions, July Dec 2008

58 China Summary Points China s export control system has developed considerably over the last 8 10 years, with more likely to come Still some differences with certain international export control standards and distinct features of the system that should be noted, especially in terms of compliance strategies Chinese industry making efforts to enhance export control knowledge, compliance, and cooperation HKSAR system more advanced, with some remaining gaps; enforcement and industry outreach continue to be key

59 Presentation Outline 1. CITS/UGA Background and Perspective 2. Regional Context, Themes, And Trends 3. Japan s Export Controls 4. Mainland China and HKSAR 5. Singapore and Southeast Asia 6. Concluding Observations

60 Singapore Presentation Outline Overview of strategic trade controls (STCs) in Singapore STC licensing in Singapore STC enforcement system in Singapore STC industry outreach efforts in Singapore Source: Conclusion

61 Singapore s Strategic Trade Profile Key transit / transshipment hub in Southeast Asia High volume of cargo traffic Export of domestically produced goods Transit/transshipment of foreign goods A good example of a balance found between strong strategic trade controls and trade facilitation Most comprehensive strategic trade control system in Southeast Asia The Enabling Trade Report 2009 (World Economic Forum) ranked Singapore 1 st among 121 countries surveyed

62 Major Characteristics Of Singapore s STC STC licensing and enforcement is centralized within Singapore Customs Allows for greater efficiency and coordination Scope of items controlled is comprehensive On January 1, 2008 expanded the Strategic Goods Control List to incorporate items from all four multilateral export control regimes Strategic Goods Control List updated in April 2009 with revised product codes Industry incentivized to regulate itself On line licensing system provides a convenient and easy portal to apply for a license The Singapore Customs website and the Strategic Trade Scheme Handbook provide a wealth of information on Singaporean STC laws Greater degrees of internal compliance are rewarded with faster and less cumbersome licensing of controlled exports

63 Key Government Actors Singapore Customs Strategic Goods Control Branch Licenses dual use items and conventional arms related items and technology. Singapore Customs Arms and Explosives Licensing Division Grants secondary licenses for small arms and explosives Singapore Customs Chemical Weapons (CWC) National Authority Grants secondary licenses for chemicals controlled under the CWC The Civil Defense Force Grants secondary licenses for petroleum and flammable material The Center for Radiation Protection Licenses radioactive materials and related technology The Central Narcotics Bureau Licenses controlled substances and narcotics precursors

64 Singapore: STC Laws Regulations of Imports and Exports Act (1995) Empowers the Ministry of Trade and Industry to establish regulations, registration requirements, and controls on imports, exports, transits, and transshipments of goods. This law designates Singapore Customs as the national authority on administering import controls Strategic Goods (Control) Act (2007) Provides the overarching legal basis for the government to license trade of dualuse items, arms, and other proliferation sensitive goods Strategic Goods (Control) Regulations (2004) Covers licensing regulations for trade of dual use items, arms, and other proliferation sensitive goods Strategic Goods (Control) Order (2007) Contains a unified list of all strategic items controlled under Singaporean law Strategic Goods (Control) (Brokering) Order (2007) Outlines the list of strategic items which require a license to broker

65 Singapore: STC Laws (cont d) Radiation Protection Act (2007) Requires that all exports of radioactive materials and related equipment be licensed Arms and Explosives Act (2007) Provides small arms and explosives import and export licensing requirements Chemical Weapons (Prohibition) Act (2007) Establishes the rules and administrative procedures for shipping CWC chemicals and requires that the export of these chemicals be licensed Misuse of Drugs Act (2008) Mandates that narcotic precursor chemical exports be licensed and contains a control list of these substances

66 Singapore: Additional Types Of Controls Domestic re exports Applies to WMD sensitive dual items Does not apply to extra territorial re exports Intangible technology transfers Strategic technology that is recorded, stored or embodied in document format must be licensed before being transferred outside of the country. Knowledge or information pertaining to strategic technology does not have to be licensed before being transferred to foreign nationals located within the Singaporean territory

67 Additional Types Of Controls (cont d) WMD Catch All Traders must obtain a license if they are seeking to export, transit or transship any item they have reason to believe or have been notified by Customs will wholly or in part be used for any activity relevant to the development of a WMD Brokering Brokers must seek a license in order to facilitate any transaction which involves an item or intangible technology that the broker knows, has to reason to believe, or has been notified will be used in conjunction with a WMD or related delivery system program

68 Singapore: Types Of STS Licenses Tier 1 License: Individual transaction Most suitable for traders conducting short term, low volume business with an assortment of end users Tier 2 License: Operations involving a variety of products with regular customers Two sub types under Tier 2: 1) a specific product or technology transfer related to a specific product to multiple customers/endusers; 2) multiple products or technology transfer related to multiple products to a single customer/enduser. To qualify for a Tier 2 license, the company has to have reasonably sound internal compliance control measures and be prepared to be subject to audits by SC Tier 3 License: Companies engaged in high volume trade with pre approved customers Requires a robust internal compliance system The holders of Tier 3 license are subject to stricter record keeping and reporting requirements

69 Singapore: Key Government Actors Singapore Customs Strategic Goods Control Branch Takes the lead in enforcing controls on trade in WMD and conventional dual use items and technology Other agencies with licensing responsibilities enforce the controls under their jurisdiction The Immigration and Checkpoints Agency, the Defense Science and Technology Agency and the Singapore Police Force Act in concert with the licensing agencies to conduct inspections and make enforcement decisions

70 STC Enforcement System: Penalties Exporting, transiting, or transhipping controlled items or technology without a license A fine of up to SG$100,000 or 3 times the value of the shipment (1 st offense) A prison sentence or up to two years (1 st offense) A fine of up to SG$200,000 or 4 times the value of the shipment (2 nd offense) A prison sentence of up to 3 years (2 nd offense) Violating the terms of the license or registration A fine of up to SG$50,000 A prison sentence of up to 1 year (12 months)

71 STC Enforcement: Additional Tools Company Audits ICP requirements integrated into licensing system (STS) Red Flags Publicized embargoed entities and countries

72 Enforcement: Violation Cases Export Violations In grade aluminum tubes illegally exported from Singapore to Malaysia Brokering Violation In 2006 CMYL and BRC were convicted of attempting to broker a deal to for Bulgaria to sell 20,000 AKMS rifles to Syria without registering with Singapore Customs

73 Enforcement: Violation Cases (cont d) Re Export Violations Singapore used by MYO Co. to illegally export precision instruments to Libya CEO of CE Corp. convicted by the United States government for illegally exporting strategic electronic items from the U.S. to India by routing them through the company s Singapore offices LWW of M Aviation prosecuted by the U.S. government for re exporting aircraft parts to Iran and for conspiring to illegally export Chinook helicopter military components from the United States to Singapore

74 Singapore s Industry Outreach Efforts TradeNet online licensing system Automatically forwards the license application to the appropriate agencies Strategic Trade Scheme introduced in 2007 Provides the procedural framework for Singapore s STC licensing system Creates incentives for industry to develop ICPs through the three tiers of licenses STS Handbook describes the various steps in the application process and explains the different license types Secure Trade Partnership (STP) and STP Plus established in 2007 Creates incentives for companies to establish and enforce their own security measures Multiple industry outreach events each year hosted by SC Covers a wide range topics including ICPs, Singaporean STC regulations, and international export control regimes

75 Singapore: Summary Points Singapore s STC system is comprehensive, transparent, and streamlined Lack of controls on deemed exports presents a potential loophole for diffusion of strategic technology The biggest STC enforcement challenge is managing the large number of transited, transshipped, and re exported items passing through Singaporean territory Traders can significantly increase the speed and ease of exporting and re exporting large numbers of strategic goods through the implementation of internal compliance and supply chain security programs

76 Presentation Outline 1. CITS/UGA Background and Perspective 2. Regional Context, Themes, And Trends 3. Japan s Export Controls 4. Mainland China and HKSAR 5. Singapore and Southeast Asia 6. Concluding Observations

77 Overall Concluding Observations Export control systems are developing throughout East Asia (though to different degrees) Approaches to export controls distinct from US/EU approaches in many areas If not already, local compliance will be important part of what is now truly global trade compliance Resources on (or in) the region are available for industry

78 Conclusion And Questions Thank you for your attention! Ryan Cathie Jay P. Nash Clarence Smith Center for International Trade and Security, University of Georgia Washington, DC Office Main Office 1120 Connecticut Ave., NW, Suite Holmes/Hunter Bldg. Washington, DC Athens, GA (202) (706)

79 The Export Control and Related Border Security (EXBS) Program United States Department of State Bureau of International Security and Nonproliferation Office of Export Control Cooperation

80 Overview Mission Approach Program Scope Private Sector Role EXBS Training along the borders of Afghanistan and Tajikistan.

81 EXBS Mission The Export Control and Related Border Security (EXBS) Program seeks to prevent the proliferation of weapons of mass destruction (WMD) and advanced conventional weapons by helping to build effective national export control systems in countries that possess, produce, or supply strategic items as well as in countries through which such items are most likely to transit.

82 al Technical Organization Overlapping Challenges Legal

83 Integrated Approach

84 The EXBS Program: $400 million to date: Over 1,472 technical exchanges and workshops $216.5M of inspection and interdiction equipment Regional Conferences and Seminars $44 million FY 09 The EXBS Program Export Control and Related Border Security Interdiction Equipment Donation to Customs Officials

85 EXBS is active in over 60 countries EXBS IS ACTIVE IN OVER 60 with COUNTRIES 20 resident advisors WITH 20 RESIDENT ADVISORS AROUND THE WORLD

86 Partners: The EXBS Program Export Control and Related Border Security U.S. Department of Commerce U.S. Department of Defense U.S. Department of Energy U.S. Department of Homeland Security Customs and Border Protection (CBP) Immigration and Customs Enforcement (ICE) U.S. Coast Guard (USCG) U.S. Department of Justice Private Sector contractors

87 Success Stories: The EXBS Program Export Control and Related Border Security Kosovo Customs intercepted ammunition smuggling (August 2009) Stopped suspicious car at the Vermica border crossing with Albania Used EXBS-donated fiberscope and EXBS-trained inspection techniques Search turned up 45 packs of ammunition in a hidden compartment under the back seat Customs officers turned over passenger and driver to Kosovo Border Police who arrested and detained them

88 The EXBS Program Export Control and Related Border Security Private Sector Role: Help identify gaps/needs Source of Expertise $75 million master grants for 6 firms to compete Best Practices Role Model for trade partners

89 The EXBS Program Export Control and Related Border Security Thank You. Justin Friedman Director, Office of Export Control Cooperation U.S. Department of State