E-MAILS, SERVERS, AND SOFTWARE U. S. EXPORT CONTROLS FOR THE MODERN ERA

I. INTRODUCTION

[*320] Technological advances in recent years have revolutionized both the types of commercial products available and the ways in which they can be transferred abroad. For [*321] example, when this nation’s last Export Administration Act n3 was enacted in 1979, business use of computers was limited, e-mail was a novelty, and the Internet as we know it today did not exist. n4 Today, practically all businesses–both small and large–use computers. E-mail is employed daily for business (and personal) purposes, and the Internet is ubiquitous in the business world, with companies and individuals able to both communicate and do business online. Software and technical data have become articles of commerce in their own right, with companies offering software products and technical information concerning their products as separate items to be licensed or purchased. n5

Over the same time period, many of the world’s economies have grown more interconnected in terms of trade, investment, and personnel. U.S. multinational companies export more abroad n6 and engage in more direct investment activities abroad than in previous decades, and their foreign subsidiaries and affiliates now ply U.S. wares to foreign [*322] buyers worldwide. n7 Foreign companies import more into the United States n8 and are more active in establishing foreign direct investment here. n9 Many U.S. citizens now work abroad, n10 and large numbers of [*323] foreign nationals are employed in the United States, n11 particularly in high-tech industries. n12 Companies naturally use technological advances to facilitate more efficient internal and external communications, both domestically and abroad, as well as to develop, market, and sell their products.

In terms of political change, in the past twenty years the world’s political order was dramatically restructured with the collapse of the Union of Soviet Socialist Republics (“USSR”) and the resulting end of the Cold War, as well as the People’s Republic of China’s (“PRC”) slow but inexorable shift toward market economy principles. With the world’s geopolitical structure no longer bipolar in nature, export controls based primarily on the country of destination arguably have become less important (with embargoed countries such as Cuba and Iran being notable exceptions) n13 and certainly more difficult to apply than in the past. That is, during the Cold War

it was far easier to determine what export destinations (such as Soviet Bloc countries or the PRC) were considered problematic for U.S. national security or foreign policy 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 recent technological, economic, and political changes is that activities defined under U.S. law as “exports” have increased exponentially, far in excess of economic growth. By far the largest increase has been in non-physical exports of technology and software. As discussed below in Parts II and III, such non-physical [*324] “exports” can occur in a variety of ways. As also explained below–and of key importance to maintaining an effective national system of export controls for commercial items–“exports” are not limited to business transactions. n14 Rather, they can include such activities as intercompany communications or meetings at which technology or software is conveyed abroad or even conveyed domestically to a national of a foreign country. n15 In some cases, Internet postings of software can be considered exports. n16 Because of the broad range of activities that qualify as exports, it is difficult to estimate the current level of non-physical exports, but it is certain to be significant.

Despite these revolutionary technological, economic, and political changes, the basic structure of U.S. export controls on commercial items remains unchanged, and the United States continues to rely on a Cold War era statute as the basis for export controls on commercial goods, software, and technology. It is clear that this statute–the Export Administration Act of 1979 n17 (hereinafter referred to as the “EAA of 1979”)–is outdated and in need of reform. n18 In fact, the EAA of 1979 is currently expired n19 (the regulations promulgated under it remain in force pursuant to a separate emergency powers statute), n20 and there has been much discussion in recent years as to what a new Export [*325] Administration Act should look like. n21 One of the primary issues driving this debate has been the question of how to balance the largely incompatible goals of promoting commercial exports and ensuring U.S. national security. On one hand, this debate has been heavily shaped by the events of and following September 11, 2001, which led some observers to conclude that U.S. commercial export controls need to be strengthened, not eased, in light of the threat of terrorism and weapons proliferation. n22 On the other hand, the increasing importance of exports to U.S. economic growth and the interconnectedness of the world’s economies indicate that imposing further controls on commercial U.S. exports could further harm what recently has been an unsteady U.S. economy. n23

[*326] To date, however, the debate over modernizing commercial export controls largely has ignored what is arguably the controls’ most fundamental structural aspect: that the controls invariably look to individual export transactions as the events to be regulated. The regulation of individual export transactions is so imbedded in the current U.S. system of export controls that many observers see control of individual transactions as an indelible feature of the export control landscape. n24 To be sure, regulating individual export transactions is a straightforward concept

Devising a workable solution to this dilemma is not an easy task. In light of the heightened concerns over terrorism and national security raised by the attacks of September 11, 2001, and ensuing events, the proper answer does not appear to be the elimination or easing of the stricter aspects of U.S. commercial export controls. Instead, a solution is suggested by two of the primary goals of U.S. commercial export controls–the promotion of exports as a whole and the prevention of exports in support of problematic end uses contrary to U.S. national security and foreign policy concerns. n25 To achieve these often conflicting goals, U.S. commercial export controls should 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 approach, which will be referred to in this Article as an [*327] “account-based” approach to export controls, would help reduce the current export compliance difficulties faced by many exporters, especially those engaged in non-physical transactions. An account-based approach 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, n26 but would not require exporters to treat all shipments of goods or transmissions of technology or software as separate-standing export transactions.

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. n27

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. Also, given the inability of Congress to enact new commercial export control legislation in recent years despite repeated efforts, such an interim approach might be a more realistic solution than wholesale statutory change. In fact, as discussed later in this Article, 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.

This Article explores the account-based approach as an alternative to the current transactionbased system of commercial export controls. Part II provides an overview of the EAA of 1979 and the regulations promulgated thereunder. Part III discusses the growth over the past two decades in “exports” of commercial goods, software, and technology, as that term is defined under the EAA of 1979, and examines in further detail why the bulk of this growth has been in nonphysical export activities. In Part IV, several examples are provided to illustrate the difficulties that current U.S. export control laws present to U.S. [*328] companies in their daily business activities. Approaches that have been suggested for reforming U.S. export control laws on commercial goods, software, and technology are set forth in Part V. Part VI outlines how an accountbased approach to U.S. export controls could be structured, and why this approach both could reduce the export compliance burden on U.S. exporters and fulfill the intended purposes of U.S. export control laws for commercial goods, software, and technology better than the current transaction-based approach. n28 Finally, Part VII concludes with observations concerning possible long-term trends for U.S. export controls.

II. OVERVIEW OF U.S. EXPORT CONTROL LAWS AND REGULATIONS

This Part gives an overview of the primary U.S. export control laws concerning commercial goods, software, and technology and the regulations implemented thereunder. As this discussion illustrates, these laws are complex and broad in scope, and the penalties for violations can be significant. As the discussion also underscores, these statutes and their related regulations were products of the pre-Internet/ecommerce era, when Cold War concerns were paramount and physical export transactions were the norm. Application of these laws and regulations to modern international trade activities has resulted in the treatment of many activities as “exports” that are not always considered as such in common business parlance, such as inter-company communications and transfers of information. The result is the imposition of a broad and somewhat anachronistic export control structure on economic activities not foreseen when these statutes were enacted.

A. History: The Export Administration Act of 1979

[*329] The U.S. Constitution vests Congress with the power to “regulate commerce with foreign nations”–that is, imports and exports. n29 On the export side of that equation, Congress has authorized various federal government entities, including the Department of Commerce, to regulate certain export-related activities. n30

The EAA of 1979 and the International Emergency Economic Powers Act (IEEPA) are the primary statutes on which current U.S. export controls on commercial goods, software, and technology are based. The EAA of 1979, which is currently expired, n31 has its roots in the Export Control Act of 1949 n32 and the Export Administration Act of 1969. n33 The EAA of 1979 set forth three main goals: enhancing national security, allowing for use of exports as a foreign policy tool, and restricting exports of materials in short supply. n34 A further goal of the EAA of 1979 was to impose export controls for antiterrorism purposes. n35

National security and foreign policy controls comprised the core of the EAA of 1979. The EAA of 1979’s national security controls were intended to restrict exports that could adversely affect U.S. national security or enhance the military power of another nation, whereas foreign policy controls were meant to promote U.S. foreign policy goals through export controls. n36 In practice, however, and as the definitions of these two types of controls suggest, the line between national security [*330] and foreign policy controls under the EAA of 1979 has been blurred.

n37 The purpose of the EAA of 1979’s short supply controls was to prevent the export of items of which there was a domestic shortage. Short supply controls generally only have been applied to natural resources such as petroleum products, and even then only in limited circumstances.

n38 The EAA of 1979’s antiterrorism controls were intended, as their name implies, to discourage terrorism. n39

Two fundamental aspects of the EAA of 1979 must be borne in mind to understand both the intended scope of export controls and the form these export controls were expected to take. First, the EAA of 1979 was intended to impose the minimum export controls necessary to ensure that the goals of the statute were met. The EAA of 1979’s declaration of policy section expressly states that export controls should be implemented “only after full consideration of the impact on the economy of the United States and only to the extent necessary” to implement the statute’s na

tional security, foreign policy, short supply, and antiterrorism controls. n40 Stated differently, the EAA of 1979 reflected a permissive policy toward commercial exports to promote economic growth. n41 Thus, the Department of Commerce has sought to balance–often with difficulty–the largely incompatible tasks of (a) promoting U.S. exports in the interest of the nation’s economic well-being and (b) implementing the nation’s primary export controls on commercial items for the purpose of promoting U.S. national security, foreign policy, short supply, and antiterrorism interests. n42 As illustrated in the [*331] following Parts, the regulations promulgated under the EAA of 1979 in many ways have not adhered to this policy statement.

The second fundamental aspect of the EAA of 1979 is that, like its predecessor statutes, it envisaged the application of export controls through the identification of specific types of items to be controlled for export purposes. n43 In other words, export controls were to be carried out by identifying problematic items and restricting their export as necessary to promote the goals of the statute. The regulations promulgated under the EAA of 1979 have followed this template, but as discussed below this approach is significantly less effective today than it was in 1979.

It should be noted that the EAA of 1979 expired by its terms on August 20, 1994. It was briefly renewed on November 12, 2000, but again lapsed on August 20, 2001. n44 Since its expiration, all regulations issued pursuant to the EAA of 1979 have been kept in force, to the extent possible, through presidential executive orders issued pursuant [*332] to IEEPA. n45 Thus, the language and purposes of the EAA of 1979 remain a significant force in current U.S. export controls.

B. Regulations Implemented Pursuant to the EAA of 1979: The U.S. Export Administration Regulations

The EAA of 1979 was enacted during the Cold War, and it envisioned a world dominated by physical exports of material products and hardcopy technology such as manuals. This world view has strongly influenced the structure of the regulations implemented under this statute and, accordingly, how these controls are applied to non-physical export activities.

1. Introduction to the EAR

The regulations that have implemented the provisions of the EAA of 1979 are the U.S. Export Administration Regulations (EAR). n46 These regulations are administered by the Department of Commerce’s Bureau of Industry and Security. n47 As previously stated, the EAA of 1979 is currently expired, and the EAR have been kept in force through a series of presidential executive orders under IEEPA. n48 President George W. Bush explained in Executive Order 13,222 “that the unrestricted access of foreign parties to U.S. goods and technology” that could result due to the expiration of the (temporarily renewed) EAA of 1979 is a sufficiently “unusual and extraordinary threat to the national security, foreign policy, and economy of the United States” to warrant declaration of a national emergency to continue the EAR in force, “to the extent permitted by law.” n49

The EAR recommend that parties engaged in export transactions ask five basic questions to determine whether the export (or reexport) of a [*333] given item requires a license under the EAR. n50 First, is the item subject to the EAR? n51 Second, how is the item classified for EAR purposes? n52 Third, what is the item’s ultimate destination? n53 Fourth, what parties are in

volved in the transaction, and are any of these parties “restricted parties” for EAR purposes? n54 Fifth, what is the intended end use of the item? n55 Depending on the answers to these questions, a license may be required for a specific transaction. n56

Parties engaged in export activities are responsible for making their own determination of whether a particular export transaction requires a license. n57 Exporters, as well as certain agents of exporters, such as freight forwarders, are also responsible for maintaining broad export transaction records. n58 Thus, the EAR actively seek to shift the burden for ensuring compliance with these regulations from the U.S. government to the exporter. While this approach to export controls has been criticized by some observers, n59 it also can be viewed as an economically efficient allocation of compliance responsibility from the U.S. government to the party that typically has the best access to information concerning the export transaction–the exporter–and who therefore can most efficiently determine whether a particular export transaction is permissible. n60 The debate on this point has ignored, however, the question of whether the current EAR structure or approach of vetting individual export transactions is less efficient than other possible approaches to export controls.

2. Basic Principles and Concepts of the EAR

The EAR apply to exports of civilian and “dual use” n61 goods, software, [*334] and technology. EAR exclude certain software or technology that is “publicly available,” and therefore not controllable as a practical matter, n62 and certain items subject to the exclusive export jurisdiction of other U.S. government agencies. n63 The EAR also apply to reexports from abroad of commercial items that are either of U.S. origin or contain greater than “de minimis” U.S. content. n64 The length of time the item has been abroad is not addressed by the EAR and is thus not relevant to such determinations. In some cases, the EAR can apply to wholly foreign-origin items that are the direct products of U.S. software or technology. n65 Depending on how an item subject to the EAR is classified, what its ultimate destination is, and the intended end use and end user of the item, an export license under the EAR may or may not be required. n66

While these rules are conceptually straightforward, the application of these rules to activities involving software and technology can be tremendously complicated. This section is intended to explain and emphasize the extremely broad scope and highly technical nature of the EAR. The difficulty in applying these rules to exports of software and technology is discussed in Parts III and IV below.

a. “Items” Subject to the EAR

The term “item” is defined under the EAR to mean “commodities, software, and technology,” n67 which terms are themselves broadly defined by the EAR. A “commodity” is “any article, material, or supply except technology and software” n68 –in other words, a physical item. “Software” is a “collection of one or more ‘programs’ [*335] or ‘microprograms’ fixed in any tangible means of expression.” n69 Software can be machine-readable “object code” or humanreadable “source code,” including software code represented by written text. n70

The EAR’s definition of technology is even broader. “Technology” is defined as “specific information necessary for the ‘development’, ‘production’, or ‘use’ of a product,” and this information can “take[] the form of ‘technical data’ or ‘technical assistance.'” n71 The EAR further ex-

plain that “technical data” “may take forms such as blueprints, plans, diagrams, models, formulae, tables, engineering designs and specifications, manuals and instructions written or recorded on other media or devices such as disk, tape, or read-only memories”

Based on this general definitional scheme, the sale and export of a machine that is provided with related software and technical manuals would involve not simply one “item,” but rather three. The provision of installation service or training would result in the export of additional “technology” as well.

b. “De minimis” Considerations

[*336] While a civilian or dual use item exported from the United States is generally subject to the EAR without respect to its original country of origin, i. e. its country of manufacture, the EAR’s jurisdiction over an item reexported from a foreign country depends on whether the item is U.S. origin or contains greater than de minimis U.S. content. n74 With certain exceptions, a reexport to a country designated as a “terrorist-supporting country” is subject to the EAR if the item involved contains greater than ten percent controlled U.S. origin content by value. n75 A reexport to any other country generally is subject to the EAR if the item involved contains greater than twenty-five percent controlled U.S. content by value. n76 Each item to be reexported–that is, each specific commodity and type of software or technology–must be reviewed separately

Furthermore, while an exporter or reexporter can self-determine whether commodities qualify for exclusion from EAR jurisdiction under the de minimis rule, the use of the rule for software or technology generally requires a one-time notification to the Department of Commerce. n79 This means that many types of foreign-origin software and technology are subject to the EAR by default, due to being commingled with even minimal amounts of U.S. content. It is important to emphasize that all items abroad with greater than de minimis U.S. content are subject to the EAR, regardless of how long ago they or their U.S. content was exported from the United States. n80

Thus, an export from Ireland to France of an Irish-origin laptop computer with a U.S.-origin central processing unit (“CPU”) that constitutes twenty percent of the computer’s total value generally would not be subject to the EAR, as this U.S. content would be considered de minimis for reexport to France. In contrast, the export of this same computer from Ireland to Syria (which is designated a [*337] terrorist-supporting country) n81 would be subject to the EAR, as the U.S. content would be above the ten percent de minimis threshold for that country. In either case, any

foreign-origin software or technical manuals for the laptop computer that contain any U.S.-origin content commingled in them would be subject to the EAR for de minimis purposes, unless excepted through the aforementioned EAR one-time notification process. n82

c. Definitions of “Export” and “Reexport”

The terms “export” and “reexport” are broadly defined to cover both transborder physical export shipments of items subject to the EAR, as well as certain non-physical transmissions of software or technology–including in some instances the domestic transfer of software or technology to foreign nationals. Specifically, the term “export” is defined as “an actual shipment or transmission of items subject to the EAR out of the United States, or release of technology or software subject to the EAR to a foreign national in the United States . . . .” n83 The use of the word “transmission”–which also appears in the EAA of 1979 n84 –denotes a clear intent to cover more than just physical exports. n85 The language concerning domestic “releases” of technology or software, which is discussed further below, further demonstrates this broad intent. It is important to emphasize that the EAR’s definition of “export” does not distinguish between sales transactions versus intracompany transactions or communications. Accordingly, the latter activities can constitute exports for EAR purposes.

[*338] For software containing encryption capability, the term “export” is defined even more broadly to include “transfer[s] of such software in the United States to an embassy or affiliate of a foreign country”

The term “reexport” is defined in similar fashion to the term “export.” Reexports include “an actual shipment or transmission of items subject to the EAR from one foreign country to another foreign country

In short, exports and reexports include a wide range of activities in addition to transborder physical shipments. The implications and effect of these broad definitions are discussed further in Parts III and IV below.

d. Deemed Exports

One interesting aspect of the EAR, and a clear indication of the intended breadth of the EAR’s scope, is the EAR’s “deemed export rule,” which is set forth in the EAR’s definitions of exports and reexports. n88 That is, in addition to applying to physical and nonphysical exports and reexports, the EAR also expressly state that a “release” of “source code” n89 software or technology to a foreign national who is not a permanent resident of the United States or a protected individual under U.S. immigration laws is deemed to be an export to the foreign national’s home country (last country of citizenship [*339] or permanent residence), even when the release occurs entirely within national borders. n90 The EAR apply a “deemed reexport” rule for releases in foreign countries to third country nationals. n91 In contrast, a foreign national who is

a permanent resident or protected individual is presumed not likely to transmit the released technology to his or her foreign country of citizenship, and thus releases of technology to such individuals are not deemed to be exports or reexports. n92

Under the deemed export rule, the country of ultimate destination is considered to be the foreign national’s “home country”–that is, the foreign national’s last country of citizenship or permanent residence. n93 The last country of citizenship or permanent residence is determined in accordance with the laws of the foreign countries in question and taking into consideration the foreign national’s existing ties to these countries. n94 As a result, each home country determination is fact-specific and may lead to different determinations for different foreign countries.

Thus, pursuant to the deemed export rule, activities such as training foreign national employees

e. Export Classification of Items

The fact that an item is subject to the EAR does not mean it automatically requires a license to export or reexport. Rather, that determination depends on several factors, starting with the item’s classification under the EAR and its ultimate destination. n96 The EAR contain a “Commerce Control List” of specific types of commodities, software and technology that are controlled for specific policy reasons (such as “national security,” “foreign policy,” and “antiterrorism”). n97 Items not specifically listed on the Commerce Control List fall into the EAR’s “basket” classification provision of “EAR99.” n98 EAR99 items generally do not require export licenses except to embargoed countries or for end use or end user concerns. n99

Over the past decade or more, the Department of Commerce has taken steps to reduce the number of items subject to export controls based on their classification. These changes have resulted in a dramatic drop in the number of license applications required under the EAR, from approximately 175,000 in 1980 to fewer than 11,000 in 2002. n100 [*341] The Department of Commerce has estimated that ninety-five percent of U.S. exports in 2000 were of EAR99 items that generally did not require export licenses, except for end use or end user concerns. n101 Nonetheless, export classification remains a fundamental element of current U.S. export controls for commercial items, since export licensing requirements hinge largely on the export classification of items. n102

f. License Exceptions and Special Licenses

In some cases, an export that would require a license under the EAR may be eligible for export under one of the EAR’s various export “license exceptions.” The intent of these license exceptions is to eliminate licensing requirements for certain types of export activities, provided

specific conditions are met. EAR license exceptions apply to various situations, including, for example, exports of otherwise controlled items to friendly countries

Many items that contain encryption capability generally require an export license under the EAR. n104 For such items, the EAR offer a relatively broad license exception, License Exception “ENC,” that permits such exports of encryption items to foreign subsidiaries of U.S. companies for internal use. n105 License Exception ENC also permits other exports of encryption items following a one-time technical review of the encryption item by the Department of Commerce prior to initial export. n106 For those encryption items that do not qualify for License Exception ENC, the EAR also permit applications for export licenses, [*342] including for special “Encryption Licensing Arrangements” (ELA) for multiple encryption item exports. n107 License Exception ENC and ELAs can be viewed as recognition by the Department of Commerce of the importance of encryption-related exports, and they reflect an attempt to balance export compliance concerns over encryption items with the facilitation of encryption item exports. n108

In addition to these license exception and encryption provisions, the EAR also permit exporters to apply for a Special Comprehensive License (SCL) to cover “multiple exports and reexports of items subject to the EAR.” n109 An SCL is an alternative to obtaining separate export licenses for discrete export transactions, including non-physical export activities. An SCL permits the performance of various types of activities, such as “service” activities (exporting spare and replacement parts), “end user” activities (exporting capital equipment), and “distribution” activities (exporting items for resale/reexport) to multiple countries and consignees. n110 SCLs may not be used for certain designated items or countries. n111 To obtain an SCL, an exporter and all proposed consignees must undergo screening by the Department of Commerce, and the exporter must prepare a comprehensive export license application package, including statements by the exporter and consignees concerning activities that will be covered by the SCL. n112 SCL holders and consignees also must have “Internal Control Programs” (ICPs) in place that are judged sufficient by the Department of Commerce to ensure compliance with the terms of the SCL. n113 Furthermore, SCL holders and consignees must maintain export records above and beyond those ordinarily required under the EAR. n114

The primary point to bear in mind with respect to license exceptions and special EAR licensing provisions is that the Department of Commerce has recognized the need to provide alternatives to standard export licenses in certain circumstances. This can be viewed as a [*343] recognition that the standard export licensing approach is not appropriate or ideal for various export activities.

g. End Use and End User Concerns

Above and beyond export licensing requirements based on the classification and destination of an item, an exporter or reexporter must determine whether there are any concerns over the end use or end user of an item. A license may be required if there is knowledge or “reason to know” that an item may be diverted to a prohibited end user or used in support of nuclear, missile, or

chemical and biological weapons activities or other proliferation activities. n115 While the structure of the EAR continues to be centered on how items are classified, the EAR’s end use and end user controls effectively act as “catch-all” restrictions to prohibit transactions contrary to U.S. national security or foreign policy that otherwise would not be restricted. n116

To provide some assistance to exporters in making end use and end user determinations, the EAR contain a nonexhaustive list of “Red Flags,” which are factors that often indicate the presence of an actual or potential export violation. n117 While this list helps provide some guidance, the ultimate responsibility for identifying these or other red flags and for determining whether there is an actual or potential violation of the EAR rests with the exporter or reexporter. n118

In a further effort to add objectivity to end use and end user reviews, the Department of Commerce maintains several separate lists of “restricted parties” for which export licenses may be required. The oldest of these lists, the “Denied Persons List,” is a compilation of persons and entities in the United States and abroad that have been denied export/reexport privileges under the EAR. n119 As explained in Part II.B.4 below, the EAR generally prohibit all parties from engaging in any transactions subject to the EAR with such denied parties. The “Entity List,” which was created in 1997, is a compilation of entities in certain foreign countries (at present, primarily India, Pakistan, the People’s Republic of China, and Russia) known to be engaged in proliferation activities. n120 [*344] As indicated on that list, licenses are typically required for transactions subject to the EAR with these entities. n121 A third EAR list, the “Unverified List,” was first implemented in June 2002 and consists of foreign parties (mostly in the People’s Republic of China) that have not cooperated with the Department of Commerce in requesting “prelicense checks” or “post-shipment verifications”–onsite inspections that are intended to verify the end use and end user of items exported under a license. n122 Listing of an entity on the Unverified List does not require an export license per se, but it is considered a “red flag” under the EAR that requires further scrutiny. n123 These three lists are certainly helpful in determining whether an end use or end user issue exists in an export transaction. However, they are not dispositive, and a significant amount of subjectivity remains in making end use and end user determinations.

The increased use of restricted party lists over the past decade reflects, in large part, a shift in export control concerns away from the nature of the items involved in export transactions and toward greater focus on the parties involved and proposed end uses for exported items. In essence, this trend underscores the changing nature of items subject to commercial export controls–that there is a multitude of truly “dual use” items that can be used either for benign commercial activities or for problematic end uses such as proliferation activities. n124

3. Multilateral Export Controls and the EAR

[*345] Multilateral export controls are generally recognized as more effective than unilateral export controls alone, especially where items are available from multiple countries. n125 The United States uses its participation in certain multilateral organizations or arrangements listed below to encourage other countries to adopt export controls similar to those of the United States. n126 The primary purpose of these efforts is to impose broader transnational export controls on items of particular concern, but the efforts also have the benefit of at least partially harmonizing U.S. and foreign export controls through the use of shared regulatory goals and schemes. n127

[*346] In particular, the United States is a member of the Wassenaar Arrangement on Export Controls for Conventional Arms and Dual Use Goods and Technologies (“Wassenaar Arrangement”). n128 The Wassenaar Arrangement is the successor to the defunct Coordinating Committee on Export Controls (“COCOM”), which consisted of most NATO members plus Australia and Japan, and whose members coordinated their national export controls to restrict exports to the USSR and its satellite states. n129 COCOM was disbanded in 1994 following the breakup of the USSR, and the Wassenaar Arrangement was established in 1996 as a broader, replacement multilateral body for the post-Cold War era. n130 Other multilateral organizations and agreements relating to export controls in which the United States participates include the Chemical Weapons Convention (“CWC”) and the Australia Group Chemical and Biological Weapons Nonproliferation Control Regime

[*347] All of these multilateral organizations reflect attempts by members to establish relatively harmonized national export controls on potentially problematic activities. The EAR have been amended to reflect some of these changes. n132 As a result, the EAR share significant similarities with export controls on commercial items maintained by some of the United States’ most important trading and foreign direct investment partners, who are also members of Wassenaar. n133 The modifications to the EAR necessary to implement these multilateral initiatives are generally authorized pursuant to the constitutional authority of the President or under U.S. export control statutes, primarily the EAA of 1979 and IEEPA. n134

4. Penalties

Violations of the EAR can be subject to both criminal penalties and civil penalties. Willful violations currently are subject to fines of up to $ 50,000 and/or imprisonment of up to five years for individuals. n135 [*348] Criminal penalties for violating the EAR also can include the denial of export (and reexport) privileges for all goods, software, and technology subject to the EAR for up to ten years. n136 In addition, such a denial order typically prohibits other companies–both U.S. and foreign– from dealing with the restricted party in any transactions subject to the EAR. n137 A denial order therefore can have a particularly damaging effect on a company, since it not only bars it from export/reexport transactions, but also cuts off its supply of items subject to the EAR as well.

Civil penalties under the EAR currently include monetary penalties of up to $ 11,000 per violation, as well as denial of export privileges. n138 The ability of the Department of Commerce to deny export/reexport privileges on a civil basis provides a significant tool for imposing penalties against foreign companies outside the United States.

While the current monetary penalties that can be imposed against violators of the EAR are relatively modest–$ 50,000 per criminal violation and $ 11,000 per civil violation–these penalties can be imposed on a per export basis. n139 That is, if a company exports a particular product, as [*349] well as related software and technology, without a required export license, that transaction could be treated as three export violations, since three items have been exported without appropriate authorization. In addition, where exports occur in the context of providing installation, servicing, or training for products, any EAR violations that occur in these activities could be penalized as separate export violations.

5. Recordkeeping

The EAR impose comprehensive recordkeeping requirements on exporters and reexporters, as well as freight forwarders and other agents acting on their behalf. Records to be retained include a broad array of documents–not only shipment documentation such as bills of lading, invoices, and licenses, but also other documents such as contracts, invitations to bid, correspondence, memoranda and notes, financial records and books of account, and reports or submissions filed with the U.S. government pertaining to export transactions. n140 Records must be retained for five years after the transaction. n141

Moreover, the EAR require that original records be kept or alternatively that copies be retained that reproduce the record in its original format. n142 It therefore is permissible, for example, to retain photocopies or electronically imaged versions of documents, but retention of order information in separate data files only (such as a spreadsheet) runs afoul of these obligations, since the information is not in its original format. In effect, the broad scope of the EAR’s recordkeeping provisions and their original format requirement impose recordkeeping obligations that are likely broader than a company’s ordinary recordkeeping requirements. Special Comprehensive Licenses impose further recordkeeping requirements as well. n143

III. DIFFICULTIES IN THE APPLICATION OF CURRENT U.S. EXPORT CONTROLS ON CIVILIAN AND DUAL USE ITEMS

The transaction-based approach of the EAA of 1979 and EAR is conceptually straightforward and can work well in the context of [*350] physical export transactions. Each time a product physically crosses a border, it is clear that an export has occurred. What was exported, as well as to where and to whom it was exported, is also relatively evident. In many instances the end use and end user will be readily apparent, either due to the specific nature of the product involved or because the export is to a related party or an existing customer. With these facts established, determining whether a specific transaction requires a U.S. export license is not necessarily an overly complex exercise. n144

In contrast, application of the transaction-based approach to non-physical export activities can be far more problematic. Yet controls on non-physical exports are certainly a logical outgrowth of U.S. export controls on physical exports. After all, if U.S. export laws apply to the export of a computer user’s manual in hardcopy or on CD-ROM, why should these controls not extend to the same manual if it is faxed or e-mailed overseas? Why should they not even extend to “deemed exports”–such as where the contents of the manual are discussed in the United States with a foreign national who can then travel overseas and apply this technology? The answer to these rhetorical questions is that some sort of export controls over these activities is generally warranted to ensure that items exported or otherwise released from the United States are not used abroad in support of nuclear, missile, chemical and biological weapons activities or other proliferation activities.

The difficulty is that the application of the transaction-based approach to non-physical exports is awkward at best and unworkable at worst. It is far harder to identify each non-physical export transaction, and as illustrated below non-physical exports can occur with relative ease. In situations involving “deemed export” releases of technology or software to foreign nationals, it even can be difficult to determine what the country of destination is, because this depends on the

fact-specific determination of the foreign national’s home country. n145 In addition, the increased importance [*351] of end use and end user controls further reduces the objective nature of any export compliance review of non-physical export transactions. If U.S. exporters (and foreign reexporters) were engaged in a relatively small number of non-physical export transactions–as they were when the EAA of 1979 was first enacted–then perhaps the current approach would be workable and would not impose an undue burden on exporters and reexporters. However, in today’s world, with non-physical exports almost certainly far outnumbering their physical counterparts, U.S. export control laws apply an anachronistic export compliance structure based on physical transactions to a new economic landscape. Any attempt to apply the Department of Commerce’s own steps for export compliance to non-physical export activities further underscores the complexity of the task. n146

A. An Explosion of Export Transactions

The seriousness of the problem is exacerbated by an explosive rate of growth in export activities. Certainly there has been growth in “standard” (that is, physical) export transactions over recent years, as the U.S. economy has grown and as more companies have engaged in exports. n147 However, non-physical exports of software and technology surely have grown at a far faster pace. While data on this trend is not readily available, it is clear that there are more ways today than in the past in which non-physical exports and reexports can occur, and there are more software and technology “items” available for non-physical exportation and reexportation.

A substantial growth in non-physical export activities can be attributed to the confluence of a number of factors:

Significant Growth in High Technology Industries. The past two decades have seen enormous growth in high technology sectors such as computers, telecommunications, foundry (photo-lithography), and [*352] bio-technology. These industries develop, produce, and use a great deal of software and technology that is subject to the EAR. n148

Growth in Types and Complexity of Software and Technology. The explosive growth of the computer industry and circuit-driven consumer electronics has resulted in an enormous increase in the types and complexity of software and technology in the market-place, both for use in development and production of products and as articles of commerce. n149 The growth in software and technology [*353] items available for export and reexport is illustrated by the fact that software subject to export controls originally was covered by a single classification category, whereas in 2003 the EAR’s Commerce Control List contained nearly seventy software-specific entries, most with multiple sub-entries. n150

The Electronification of Communications. Over the past twenty years e-mail has emerged as a standard communications tool and greatly facilitates the sending of technical information and software. Software or technology that only a few years ago might have taken a day or more to express mail to a foreign destination now can be sent virtually instantaneously, without even the need to photocopy or download to CD-ROM or computer diskette. Many companies also have established intranets

for internal communications among U.S. and foreign locations. n151 In many cases employees worldwide can access software or technology on company servers located in the United States

The Electronification of Commerce. The growth of the Internet has seen a corresponding surge in “e-commerce”–the buying and selling of items utilizing the Internet. n152 The automation of such [*354] activities, without the need (or with a reduced need) for a store-front or sales force has allowed for a greater number of transactions–including export or reexport transactions–to be handled on an automated basis. Even outside the realm of the Internet, the development of electronic telephonic systems for order processing–both voice recognition systems and the more mundane technology of touchtone menus–has assisted the growth of automated transactions, including export and reexport transactions. As discussed above, in some cases even the posting of software or technology on the Internet can be considered an export under U.S. law. n153

Increased Globalization in Business Structures and Business Relationships. Recent years have seen increased globalization of business structures and relationships, both between related parties and unrelated parties. Since 1982, foreign direct investment by U.S. companies has grown from US$ 207.8 billion to US$ 1,521 billion, an increase of over 630%. n154 Similarly, inbound investment into the United States has increased from US$ 124.7 billion in 1982 to US$ 1,348 billion in 2002, a rise of 980%. n155 In some cases, most notably the People’s Republic of China, preferential tax treatment or other financial incentives have further encouraged direct investment in high-technology industries. n156 In other cases, companies have outsourced certain design services for products, to save on labor and overhead costs, and have provided the foreign company involved with detailed technical data necessary to perform these design services. n157

[*355] Even absent direct investment in a foreign market, companies can and do use local distributors or sales representatives abroad to help generate sales and provide servicing to customers abroad. Companies also have turned to international procurement as a way to broaden their supply base, and in many cases companies provide technical specifications for their products to foreign suppliers to enable the foreign suppliers to design or manufacture the requested products to those specifications.

With such transborder business relationships becoming more common, the need for communication among the parties involved also has grown. This has included not only electronic transfers of information but also more traditional methods, such as telephone conferences and international travel for purposes of meetings and training sessions. While physical travel and electronic communications are in a sense substitutes for one another–e.g., physically carrying a CD-ROM instead of emailing the information on it–they are also complementary, in that meetings and training sessions often result in follow-up communications.

Increased Workforce Mobility Across National Borders. As the number of companies with business presences in more than one country has grown, the number of people employed outside their home countries also has grown. n158 An increase in foreign direct investment in the United States in the past twenty years has resulted in a larger number of foreign nationals in the U.S. workforce as well, in significant part due to the demand for employees with high technology skills sets, such as computer programmers and electrical engineers. n159 As noted previously, in some high technology industries in the United States, the majority of technical employees may be foreign nationals. n160 While some of these employees were hired directly from foreign countries, in other cases they have transferred internally within a company (or among related companies) from a foreign location to a U.S. location. In still other cases, U.S.-educated foreign nationals are hired by U.S. companies and remain in the United States for employment. In any of these [*356] cases, the release of software or technology subject to the EAR to such persons in the United States can be a “deemed export,” unless, as explained above, these persons become U.S. citizens or permanent residents.

The combined effect of these changes in the U.S. economic and technological landscape is that U.S. export controls apply to an increasingly large percentage of U.S. and foreign companies’ business activities, even when no physical exports are involved, and even in some cases where there are no actual transmissions of information across a national border. Legally speaking, all such non-physical activities are treated under the EAR as individual export transactions involving discrete “items,” with all of the export compliance and recordkeeping requirements that export activities under the EAR entail. This is a somewhat artificial way, however, to view activities such as research and development, customer service, meetings, or training that often involve multiple transmissions of information. The result is an approach to U.S. export controls that is fundamentally out of sync with transnational economic activities.

B. The Movement Toward More Subjective End Use and End User Export Controls

As discussed above, the structure of the EAA of 1979 and of the EAR is based on the identification and classification of the items being exported or reexported and a determination of whether an export license is required for the destination in question. n161 However, the overlay of end use and end user controls, which are largely based on lists of restricted parties, as well as on end use concerns and “reason to know” judgments, adds a significant element of subjectivity to the export compliance process. In essence, the “reason to know” standard obligates exporters and reexporters to examine export and reexport transactions more closely in the event that something may seem out of the ordinary, even if there is no actual knowledge that the item might be diverted to a restricted end user or prohibited end use. As a practical matter, these factors can oblige exporters and reexporters to conduct subjective due diligence on many types of export transactions or risk committing “reason to know” violations of the EAR.

As the number of items subject to export controls based on their [*357] classification has fallen over recent years, the EAR’s end use and end user restrictions have come even more to the fore. Stated differently, export controls have become less centered on the nature of items exported and their destination and have become more focused on the parties and end uses involved.

To a significant degree, this shift reflects the change in the U.S. export control landscape from a bipolar, Cold War world to one where the greatest threats are considered to be individual actors or entities (in some cases spread across multiple countries) and the proliferation activities of certain “rogue states,” such as North Korea. n162 The result is a greater reliance on subjective “reason to know” judgments (concerning end uses and end users). Application of these subjective controls is made even more difficult in the context of non-physical export transactions, as illustrated by the examples and case studies in the following section.

IV. EXAMPLES AND CASE STUDIES

U.S. export controls on civilian and dual use items are broad in their scope and complex in their application, especially where non-physical export activities are concerned. The following hypothetical examples are intended to underscore the breadth of these laws and the difficulties faced by U.S. exporters in identifying non-physical export transactions and ensuring full compliance with U.S. export control laws. A review of these examples also will illustrate various types of non-physical “exports” that would not have been possible (or at least as common) twenty years ago. These examples are admittedly technical and complex, but that is precisely the point: to ensure compliance with U.S. export laws for civilian and dual use items, companies are forced to apply rules that are largely inconsistent with the nature of many commercial activities.

A. Example 1: Service Visit to Foreign Subsidiary

Facts

• Company A is a U.S. company that makes integrated circuits. It has subsidiaries located in France, Belgium, and Germany.

• Company A regularly sends an employee to visit these European subsidiaries. On each trip the employee typically takes samples of Company A products, as well as a laptop computer loaded with operating software, engineering application software, and design files for Company A integrated circuits.

• [*358] On these trips the Company A employee usually provides training to subsidiary employees concerning the design and use of Company A products. The subsidiaries’ employees include both local nationals and nationals of other nations, including Russia, India, Taiwan, and Libya.

Effect n163

• Company A and the employee have engaged in exports to France, Belgium, and Germany of not only the sample products and laptop computer but also of the software and technology files that were loaded on the computer. Depending on how these items are classified, an export license may or may not be required, although it is likely that one or more EAR license exceptions would apply in any case. Nonetheless, these activities are considered exports under the EAR.

• Through the training sessions, Company A and the employee also have engaged in “releases” of design and use technology that are deemed reexports to Russia, India, Taiwan, and Libya. This is true even if the Company A employee is not aware of the nationality of the employees being trained. n164 An export license would be required for the deemed export to the Libyan national. Depending on how this technology is classified, an export license may or may not be required for the deemed reexports to the Russian, Indian, and Taiwanese nationals.

B. Example 2: U.S. Company Establishing a Foreign Manufacturing Operation

Facts

• Company B is a U.S. manufacturer that has decided to sell used production equipment to a third party manufacturer in the People’s Republic of China. The transaction will involve the export of manufacturing equipment, as well as of software and instruction and maintenance manuals for the equipment.

• Company B personnel are in daily communication with the buyer in the PRC, assisting by telephone in the assembly and startup of the equipment in the PRC.

• [*359] Employees of the PRC buyer travel to the United States for training in the use and maintenance of the equipment.

Effect

• The shipment of the equipment, software and manuals from the United States to the PRC are exports of goods, software, and technology to the PRC.

• Each communication between Company B personnel and the buyer in the PRC that conveys use technology is a non-physical export of that technology to the PRC.

• The training in the United States of PRC national employees of the PRC buyer is a deemed export to the PRC of use technology for the equipment.

C. Example 3: International Procurement and Design Outsourcing

Facts

• Company C is a U.S. company that designs manufacturing facilities to customer specifications.

• To reduce design costs, Company C contracts much of the design work to a subsidiary in Malaysia, where labor rates are significantly lower. To provide its Ma

laysian subsidiary with full and current information concerning each project, once a day Company C’s computer server automatically downloads technical information concerning all equipment involved in the project to the Malaysian subsidiary’s server. Each project may include several thousand different types of equipment.

• Company C also employs PRC nationals in the United States, who also are involved in providing these design services. These PRC national employees have access to this same technical information.

Effect

• Each automatic download of design, production, or use technology for the equipment to the Malaysian subsidiary is an export (of potentially several thousand types) of technology to Malaysia.

• Each time a PRC national employee in the United States accesses technology from Company C’s server, it is deemed to be an export of that technology from the United States to the PRC.

D. Example 4: Provision of Sample “Kits” and Related Software and Technology to Foreign Customers

Facts

• Company D is a U.S. company that licenses designs for various types of consumer electronics products. For a fee, Company D [*360] provides its foreign customers with a sample “kit” that shows the internal layout of components in these products. Each kit consists of hundreds or thousands of individual components, as well as technical specifications concerning the design of the Company D products concerned. Many customers are located in Japan, Korea, and Taiwan.

• Company D also provides technical support and training to its customers on an ongoing basis to educate them as to the design and manufacture of Company D products. Technical support may be provided by telephone, e-mail or Internet postings, provided locally at the customer’s foreign facility, or customer employees may travel to Company D facilities in the United States for training.

• Company D also provides its customers with software for the products. Software is typically sent via e-mail or posted to the Internet for download. Software updates and “bug fixes” are also provided on a rolling basis as needed.

Effect

• Each export of a sample “kit” is an export of physical products and product technology to the customer’s country. The kit might be viewed as a single physical item

and related technology, or alternatively as a number of disparate (and separately classified) individual components (and related technology). Depending on the destination involved and classification of these items, an export license may or may not be required.

• Each instance of technical support and training provided by telephone, e-mail, Internet download, or onsite is an export of technology to the customer’s country.

• Each instance of training in the United States is a deemed export of technology to the foreign national’s home country, which may or may not be the country in which the customer is located. Also, any training materials that trainees take out of the United States after the training may (depending on the materials) be exports of technology subject to the EAR.

• Each electronic download by a foreign customer of software for Company D products is an export under the EAR of that software to the customer’s country (to the extent the software is subject to the EAR). This includes any downloads of software updates and “bug fixes.”

• Any subsequent components (and related technology) that the customer sources from Company D are exports of those items from the United States to the customer’s country.

V. APPROACHES PREVIOUSLY PROPOSED FOR IMPROVING U.S. EXPORT CONTROLS

[*361] As the above discussion and examples demonstrate, compliance with U.S. export laws in the modern marketplace is difficult, and the difficulty begins with identifying what activities constitute the individual, discrete export transactions subject to the EAR. It has been observed, and correctly so, that anyone who has thought about the matter would recommend that U.S. export regulations be simplified. n165 This, of course, begs the question of how to achieve this goal. As previously noted, in the 1990s the Department of Commerce itself attempted to simplify the EAR and reduce the number of export licenses required thereunder, in large part due to the end of the Cold War and the growing importance of exports to the U.S. economy. n166 While this attempt was not entirely unsuccessful, it did not alter the fundamental approach of basing export controls on individual and discrete export transactions. At least one commentator has proposed sweeping changes to U.S. export controls, implicitly suggesting–without exploring in detail–a partial shift away from basing all export controls on discrete export transactions. n167 Other commentators have focused on worthy issues raised by U.S. export controls–such as the problems caused by having multiple federal agencies involved in administering U.S. export controls–but again, these commentators also accept the current structure of U.S. export controls without question. n168 In short, the use of discrete export activities, physical or otherwise, as the basis for U.S. export controls on civilian and dual use items remains a tacit assumption of U.S. export controls.

A. The Department of Commerce’s “Choke Point” Approach

In the quest to improve the effectiveness of U.S. export controls and reduce the burden they impose, in the early 1990s the Department of Commerce turned to what has been described as a “choke point” approach to U.S. export controls. The basic premise of this approach, which the Department continues to use, is that there [*362] should be “higher fences around a fewer number of goods,” n169 and that these controlled articles should be carefully chosen to act as “choke points” to prevent foreign actors from engaging in proliferation activities. William A. Reinsch, former Undersecretary of Commerce for the Department of Commerce’s Bureau of Export Administration (now the Bureau of Industry and Security) explained this approach as follows:

Missile technology, for example, takes a lot of sophistication, and it takes a lot of specialized material, it takes a lot of design work, it takes a lot of knowledge, and it takes a lot of systems integration. The key is to look at the problem as you would a puzzle . . . where you have to put together 250 pieces to make a picture, we are not stopping all 250 pieces, maybe we are only stopping 10 or 15 pieces. . . . But the puzzle isn’t done unless you have all of them, and so that is the idea of choke points, maybe you can stop only one piece, but if it’s the critical piece then you have done your job. n170

Undersecretary Reinsch also noted that as a practical matter many dual use goods that might make up such a “puzzle” were available outside the United States and beyond the jurisdictional reach of the EAA of 1979 and EAR. n171 Former Deputy Defense Secretary Perry voiced a similar view that controlling all dual use items is impossible and that the United States should only focus on controlling those items that are most critical to weapons activities. n172 The term “choke point” has in fact become synonymous, in export control parlance, with the very goal of targeted and effective export controls. n173

This approach works well in theory and to some extent in practice, as [*363] evidenced by the drop in license applications required in recent years. n174 However, it requires accurate identification of choke point items. With so many dual use items available that can be used for multiple activities, either good or bad–such as a standard integrated circuit or desktop computer–it is difficult to identify effective choke point items. Furthermore, the approach requires that the list of these controlled items be updated on a rolling basis as new, potential choke point items come into existence, and as older ones become available abroad and thus cease to be effective as choke points. Conceptually speaking, not listing new items may be the more serious problem from a national security or foreign policy point of view, but listing items as choke points that no longer should be so listed also would present a serious problem, since it would have a restrictive effect on U.S. exports and would potentially benefit foreign competitors.

An even more fundamental problem with the choke point approach, however, is that it embraces, without question, the system of controlling all export activities, including all nonphysical export activities, as discrete, individual events. To borrow from Undersecretary Reinsch’s example above, viewing a project as a puzzle that might have 250 pieces consisting of products, software, and technology means that there are literally hundreds of physical and nonphysical export activities involved in the project, each one possibly subject to the EAR, and each one potentially subject to export licensing requirements due to export classification, destination, and end use and end user concerns. There may be effective “choke point” items involved in the project, but all 250 pieces of the puzzle first need to be reviewed by the exporter to make this determination. In some cases, such a comprehensive review may be warranted, but in others, such as exports to related parties or contract providers, the national security or foreign policy benefit is questionable.

While there have been efforts in the past several years to enact a modern Export Administration Act to replace the EAA of 1979, these recent efforts have followed the same choke point approach to reducing the burden of export compliance by “building a higher fence around a smaller number of export items,” n175 without changing the [*364] basic structure of these controls. In many other ways, these newer legislative efforts, had they succeeded, would have represented a recodification of outdated aspects of the EAA of 1979 and the current EAR. n176

B. A Proposal to Simplify the List of Controlled Items and Shift the Burden of Review

It also has been suggested by one academic observer that export compliance and national security concerns can be met simultaneously by simplifying the list of controlled items under U.S. export regulations and shifting the burden of review for export licenses to the U.S. government. n177 In essence, this proposed approach would work as follows:

• Simplified export classification. The U.S. government would establish a simplified and unified list of technology and weapons that it wishes to control. This list would be broadly definitional instead of focusing on specific technical characteristics. n178

• Prior notification of export. Prior to exporting any item that might fall within these broad categories of items, an exporter would be required to notify the U.S. government of the name of the item to be exported, provide a general description, and list the destination and end use of the item. In other words, the exporter no longer would have the ability, without U.S. government involvement, to self-classify items and determine whether an export license is required for a particular export. n179

• U.S. government review of proposed exports. The U.S. government would be responsible for determining whether an export license is required. If the U.S. government does not respond to the exporter within a certain time period–such as within sixty days–then the [*365] item could be exported. n180

• U.S. government authorization. If the U.S. government does respond, it could either deny the export or authorize the export. If authorization is given, all future shipments of that item to that destination and end use would be authorized as well, unless later revoked by the U.S. government. n181

It is suggested that this approach would not overburden the U.S. government because of technological advances in computing and the fact that many exports are repeat exports of the same items to the same destinations for the same end uses. n182 Exporters would not be saddled with the responsibility of self-compliance with complex U.S. export laws and regulations, and

determinations of export permissibility would be made by those U.S. government officials responsible for implementing U.S. export controls and their national security/foreign policy objectives.

The simplicity of the approach is appealing, and the ability to obtain “one time review” is not that far removed from suggesting that repeat exports to the same destinations/end uses not be treated as discrete export transactions. However, this proposal oversimplifies matters in several ways. The requirement of notification prior to export certainly would add significant delay to many lawful exports that currently do not require governmental review or approval. Application of this approach to non-physical exports likely would be particularly difficult, since their review could overburden the U.S. government and substantially hinder innocuous export activities such as inter-company transfers or transborder R&D activities. Stated differently, the large number of non-physical export activities for which exporters can now make their own independent compliance determinations would be funneled through government review, possibly resulting in insufficient review and unwarranted delays.

More importantly, this approach would inefficiently shift decision making from the exporter, who generally has more technical knowledge concerning the item intended for export, to U.S. government officials, who of necessity would be less familiar with the item. n183 A [*366] government that is particularly sensitized to national security concerns might well be overly conservative in reviewing and approving (or denying) exports. This seems particularly true for hightechnology industries, given the complexity and rapidly evolving nature of such products. n184 Allowing exports to occur after a certain period if no objection is received from the U.S. government also raises the chilling specter of exporting a controlled item in support of a proliferation end use that the U.S. government authorized by default.

VI. A NEW SHORT-TERM SOLUTION: THE ACCOUNT-BASED APPROACH

A solution to the dilemma of how to modernize U.S. commercial export controls and align these controls with the nature of global marketplace transactions is suggested by two of the primary goals of current U.S. commercial export controls–namely, (a) the goal of promoting exports generally and (b) the goal of preventing exports that are in support of problematic end uses contrary to U.S. national security and foreign policy interests. n185 Specifically, U.S. export control laws could shift their focus away from reviewing individual export transactions and toward reviewing the overall export activities of U.S. exporters and examining whether these activities raise export compliance concerns from an end use and end user point of view. As explained further below, this approach would be fully consistent with current goals of U.S. commercial export control laws.

Such an approach is referred to in this Article as an “account-based” approach to export controls. As the following summary of the account-based approach’s primary features illustrates, it would offer the significant advantage of reducing export compliance difficulties currently faced by many exporters–especially those engaged in non-physical transactions–since it would deemphasize the need to identify and review each specific export event, and instead place greater focus on identifying and resolving end use and end user concerns. This approach also has the virtue of accurately reflecting the nature of international business transactions, which often involve multiple “exports” as defined under the EAR–either because they are ongoing [*367] projects or because they are transactions that involve goods, software, and technology.

A. Elements of the Account-Based Approach

The fundamental aspects of an account-based approach would be as follows:

• Written profile of business activities. Exporters wishing to use the account-based approach would provide the U.S. government with a written profile of relevant business activities, including domestic operations, related foreign entities and branch offices, and product lines.

• Written statement of proposed export activities. Companies also would provide a written statement of export activities and parties for which account-based treatment is sought, including related foreign entities and branches, distributors, contract manufacturers or consultants, customers, etc. Inclusion of export classifications of primary products, software, and technology involved would be helpful but may not be necessary in all cases.

• Blanket approval from the U.S. government. Based on the information provided, blanket approval could be granted for some or all export activities described in the company’s written statement of proposed export activities. The period of the approval could be for a number of years: current EAR licenses typically have a validity period of two years, n186 but longer periods could be appropriate for companies with relatively static business activities. n187 Export-related activities considered to raise concerns could be carved out of the approval.

• Simplified recordkeeping. Formal export recordkeeping requirements would be eased for activities falling within the scope of the blanket approval. Recordkeeping requirements would be limited to any information, gathered in the course of business, that is sufficient to verify that a given export activity falls within the scope of the blanket authorization. This information could be retained in any convenient format.

• Other activities reviewed on a transaction-by-transaction basis. Export activities that fall outside the scope of the blanket authorization could be reviewed and licensed as necessary on a transaction-by-transaction [*368] basis. In addition, companies that choose not to request account-based approvals could continue to review their export activities on a transaction-by-transaction basis and file for discrete export licenses as required.

The “account-based” approach thus could be implemented to simplify U.S. export controls on export activities and fulfill U.S. national security and foreign policy goals. In other words, certain exports and reexports could be authorized without the need to vet individual export and reexport activities. This approach certainly would be beneficial for non-physical export activities, but it also could be applied to certain types of physical exports, such as inventory or equipment transfers among related entities or to regular customers. In some ways, this approach would re

flect elements of the EAR’s Special Comprehensive License and Encryption Licensing Arrangement, as well as of certain EAR license exceptions. n188 However, the account-based approach would be broader in scope and less burdensome in application.

In essence, the account-based approach could act as an overlay to the transaction-based structure of the current EAR. The account-based approach would provide for clear export authorization for many export activities, without the need either to identify and review discrete export activities or the need to maintain export records above and beyond ordinary corporate records. Those activities considered potentially problematic or worthy of closer review could be excluded from an approved “account” and be scrutinized on a transaction-by-transaction basis, but those that generally are not considered problematic–such as many exports to related entities, exports to established customers, training for company employees, or other types of deemed exports involving company employees or established customers–could be exempted from transaction-bytransaction review. This could reduce substantially the overall cost of complying with U.S. export controls, without any noticeable effect on the effectiveness of U.S. export controls, since the approved “account” activities would not raise end use or end user concerns.

The account-based approach might be viewed as an application to export controls of Pareto’s principle, also commonly known as the “80:20 Rule”: that twenty percent of export activities probably account for somewhere in the range of eighty percent of export compliance [*369] issues (and should be closely reviewed), while eighty percent of export activities likely raise only twenty percent of export compliance issues (and justifiably can be covered by blanket, accountbased authorizations). n189

B. Approaches for Implementation

The preferable method for implementing the account-based approach would be through passage of a modernized Export Administration Act or similar legislation mandating this approach. However, Congress is unlikely to act quickly to replace the current approach, especially given its inability to pass a new Export Administration Act to replace the EAA of 1979. In addition, any statutory changes would need to take into account the Wassenaar Arrangement and the other multilateral export control regimes discussed above, all of which are structured to focus on individual exports of goods, software, and technology. It is quite possible that Congress, the Administration, and members of relevant government agencies such as the Department of Commerce would be reluctant to break away from the current transaction-by-transaction approach reflected in the current EAR framework. Thus, it is fair to say that, at least in the short term, the focus on individual export transactions is likely to remain a key part of U.S. export controls.

In the absence of statutory changes or changes to the basic structure of the EAR, the accountbased approach could be superimposed upon the existing EAR structure as an alternative licensing scheme. Such efforts would be consistent with section 12(e) of the EAA of 1979, which instructed the Secretary of Commerce to “review the regulations issued under this Act . . . in order to determine how compliance with the provisions of this Act can be facilitated by simplifying such regulations [*370] . . . .”, n190 and also would be consistent with the EAR’s current emergency statutory authority, IEEPA. n191 As an overlay to the current EAR scheme, an accountbased approach certainly would be a substantial modification to the EAR, but it would have the advantage of retaining the current structure and licensing approach, while offering a new (and more efficient) alternative.

In fact, the account-based approach can be characterized as a formalization of recent, piecemeal modifications to the EAR, as well as of de facto changes in its application, which illustrate an inexorable shift away from treating exports–in particular non-physical export activities–as wholly separate and discrete transactions. n192 With the paradigmatic shift from export controls based on item classification and destination to export controls based on end use and end user concerns, U.S. export controls have become significantly, arguably even primarily, based on the nature of the transaction and entities involved, rather than on item classification and destination. This shift, coupled with the explosive growth in non-physical export activities, makes traditional screening of individual export transactions a potentially very expensive and daunting proposition, as the examples in Part IV of this Article clearly illustrate.

As a result, exporters already can review “bundles” of similar export activities for export compliance purposes, and end use and end user concerns can be vetted by exporters on a supertransactional basis by grouping similar transactions together for export compliance review. This approach is not mandated under the current EAR, but neither is it prohibited. n193 In addition, the EAR’s own license exceptions–which authorize transactions that otherwise would require licenses, provided certain factual requirements are met–further promote exporters’ review of export activities in factually similar groups or bundles. n194 Explicitly permitting exporters to bundle authorized exports under an account-based approach would be a logical formalization and extension of these trends.

C. Administrative and Policy Issues

As the above discussion makes clear, the account-based approach in essence would frontload the government’s export compliance review [*371] process, thus allowing the government to identify and resolve export compliance concerns in proposed activities prior to their occurrence. By having this review done in advance, the exporter would be certain that the export activities involved were permissible. The requirement of government review also would have the benefit of requiring the government to examine export activities in a broad business context, rather than as discrete (and possibly somewhat artificially separated) transactions, as currently occurs in EAR license applications. This should provide government licensing officers with a better sense of how the activities fit into the overall business of the exporter, and thus help prevent excessive scrutiny of details that in the larger context are not significant. In essence, review of export activities on an account basis would help prevent government licensing officers from missing the forest for the trees.

It is possible that implementation of the account-based approach might result in additional review burdens on the government. However, it is the author’s view that any increase in licensing requests under the account-based approach likely would be temporary and more than made up for in the long term, as exporters come to rely on account-based approvals for activities that previously would have required separate export licenses. In any event, it is to be expected that the first exporters to request account-based approvals would be large exporters or those that face significant export licensing requirements. Other exporters might be more likely to wait to file account-based approvals, so that account-based submissions are spread out more manageably over time. Even if this does not occur, however, the account-based approach offers significant long-term benefits, both in terms of facilitating lawful exports and more appropriately focusing government review of export transactions.

It also must be acknowledged that under the current EAR licensing approach, many nonphysical export activities do not require licenses. These are activities that (a) involve EAR99 items and therefore generally do not require export licenses, or are not EAR99 but do not require export licenses to the destinations (or deemed destinations) involved, and (b) do not present end use or end user concerns (for example, “exports” to employees or related companies for legitimate business purposes would not raise end use or end user concerns). This could raise the question of why the account-based approach is needed. The more important and appropriate question, however, is why such “no license required” activities are treated under the EAR as discrete exports in all cases. n195 That is, the proper question is whether fitting the [*372] square peg of non-physical export activities into the round hole of discrete export transactions is the most efficient method of balancing export control concerns with minimizing unnecessary burdens on export activities.

This Article suggests it is not. As the number of exporters and reexporters continues to grow, and as the U.S. and foreign economies become further interconnected, the need to align U.S. commercial export laws and regulations with the realities of international business transactions becomes ever more important. In terms of increased national security or achievement of U.S. foreign policy objectives, the burdensome nature of the current approach certainly appears to exceed the benefits achieved, a shortcoming that the account-based approach would help remedy.

The United States is generally recognized as having the strictest export controls in the world on commercial items. n196 That being said, other countries, most notably other Wassenaar members, have export control regimes in place as well. In the case of Wassenaar members, these regimes are premised on the same transaction-based, classification-driven approach taken by the EAR. n197 A similar account-based approach also could be adopted in those countries, and if so, would further reduce the burdens on companies engaged in transnational business activities while continuing to protect national security and foreign policy concerns of both the United States and its primary trading partners.

VII. LONGER TERM CONSIDERATIONS

The account-based approach–whether implemented through statutory changes or through interim regulatory changes under the current statutory structure–offers a useful approach for simplifying the current application of U.S. export controls on commercial items, especially [*373] with respect to non-physical export transactions, without compromising the overarching national security and foreign policy concerns that are the very reasons for these controls’ existence. However, as the global economy and technology continue to evolve, even this approach at some point will become outdated. As such, the account-based approach at its core is an interim solution to significant current problems in U.S. export controls.

What, then, is the long-term prognosis? What will be the future of export controls, especially on non-physical exports? Some observations can be made in this regard, and some general, albeit tentative, conclusions can be drawn. First, the rapid pace of technological innovation over the past two decades will continue and likely accelerate. One result will be that non-physical exports also will continue to increase as the technologies facilitating such activities–for example, webcasting capabilities (leading to further deemed export opportunities), internal computer networks, and portable, wireless computing capabilities–become more powerful, affordable, and wide

spread. Successful easing of restrictions on transnational provision of services would further accelerate the increase in non-physical exports.

Another effect of accelerating innovation will be a continued expansion in the number and type of technology-focused commercial products, software, and technology. We are, for example, at the cusp of a revolution in biogenetics and nanotechnology. n198 Developments in these fields promise the creation of new medicines and medical devices and a flurry of export activity, due to research and development, manufacturing activities, and international distribution. A further example of technological advancement in the commercial sphere is the recently reported effort by several companies to replace the ubiquitous UPC bar code (used in consumer products and for inventory tracking) with miniature, radio-transmitting integrated circuits implanted into products or the products’ packaging. n199 The possible applications for such mini-chips are virtually endless, including protection against [*374] shoplifting, automatic notification of expired items on shelves or the need to restock (both in stores and at home), warning of recalls, and inventory tracking. The widespread adoption of such mini-chips would be a boon to the global photo-lithography industry. These developments would result in further increases in export and reexport activities in these industries, as manufacturing and sales activities (including crossborder activities) increase to meet demand.

Second, the civilian versus “dual use” distinction in U.S. export controls likely will be eliminated. The distinction is already blurry at best and largely meaningless, n200 and as even basic consumer articles become more technology driven the distinction largely may disappear. In fact, the past decade’s rise in end use and end user concerns can be viewed in large part as a tacit recognition of the fuzziness of this distinction, since the EAR’s primary end use concerns–nuclear, missile, and chemical/biological weapons activities–are military-related concerns, and a number of EAR-restricted parties are foreign government entities involved in defense-related activities. n201

Third, multilateral controls will continue to grow in importance. The United States currently participates in multilateral arrangements such as the Wassenaar Arrangement, Chemical Weapons Convention, Australia Group Chemical and Biological Weapons Nonproliferation Control Regime, Nuclear Suppliers Group, and the Missile Technology Control Regime. n202 Such participation helps harmonize U.S. export controls with those of other participating nations and provides a venue for export control policy cooperation. The more beneficial long term effect, however, is that the use of multilateral export controls should permit the strictness of national export controls on sensitive items to certain friendly destinations, i.e. other nations that participate in these multilateral frameworks, to be further eased, since those countries would have similar controls in place that prevent unwanted reexports or diversions to problematic end uses or end users. In fact, the EAR currently contain a license exception called APR (Additional Permissive Reexports) that in some cases permits reexports from friendly countries–those countries, such as EU members, considered by the [*375] United States to have sufficient export controls in place to protect U.S. national security interests–provided local export authorization is obtained for the reexport. n203 This license exception can be viewed as an outgrowth of multilateral cooperation in export control matters, and the license exception even could be used as a basis for further easing export controls to friendly countries.

If multilateral export controls continue to take on greater importance, nonparticipating countries likely will find it more difficult to obtain sensitive items from participating countries and might become more willing to join these multilateral efforts as a result. In short, greater access to

other participating countries’ goods, software, and technology would be the carrot for participation, and exclusion from these benefits would be the stick. It will be particularly interesting to observe how the slated expansion of the European Union from fifteen members to twenty-five members on May 1, 2004 affects multilateral export controls, since U.S. export controls on current EU members (all of whom are Wassenaar members) are permissive, while only four of the ten new members–the Czech Republic, Hungary, Poland, and Slovakia–are current Wassenaar members. n204

Fourth, multilateral export control efforts likely are a first step toward at least partial elimination of U.S. export controls in the future. The EU, for example, permits relatively free movement of goods within the community–including internal imports/exports among EU members–while retaining external export controls. n205 The United States and Canada have liberal export licensing policies toward each other and cooperate closely in export control matters. n206 The United States [*376] does not even require (with limited exceptions) the filing of official export declarations for exports of commercial items to Canada, an exception not granted for exports to any other country. n207 These two economies are highly integrated, and each is the other’s largest trading partner. n208 Each participates in the Wassenaar Arrangement and other multilateral export control regimes, and accordingly each maintains similar export controls on commercial items. The United States and Canada have substantially reduced import (customs) barriers on U.S.-Canadian trade, for example through NAFTA, n209 and also have taken practical steps to facilitate U.S.-Canada trade. n210 Elimination of controls on exports of commercial items between the two countries would seem a logical, eventual step.

Depending on how events unfold, the United States could take similar steps with EU members, Japan, Australia, Mexico, Chile, Singapore, and other trading partners as warranted. n211 The United States is in fact already working to negotiate and implement free trade agreements [*377] with a number of these countries. n212 Focusing such bilateral or multilateral efforts on the United States’ most significant trading partners would provide the greatest economic benefit and also be more likely to succeed, given the mutual self-interest of the parties involved. Of course, long-term elimination of internal export controls among participating countries would depend on maintenance of common and mutually supportive external export controls, a challenge arguably not currently met by the Wassenaar Arrangement. n213

It will be interesting to look back in forty years to see how the evolution of the international marketplace has wrought changes in U.S. export controls. In the meantime, use of the accountbased approach to U.S. export controls would further facilitate beneficial commercial trade between the United States and its trading partners, consistent with U.S. national security and foreign policy goals. By promoting legitimate and desirable trade through minimizing export control restrictions on such trade, the account-based approach may help accelerate some of the aforementioned anticipated trends in trade law harmonization and elimination of national export controls.

VIII. CONCLUSION

From an export control perspective, the ultimate result of recent and future changes in transborder commercial activities would be the elimination of export controls on commercial export activities, at least on a regional or trading partner basis, and the satisfaction of U.S. national security and foreign policy concerns through other means such as multilateral export controls. In

the interim, the question is how to begin moving away from the United States’ current position–the use of outdated and overly restrictive transaction-based export controls on commercial items–and reduce the tension between international business concerns and U.S. export controls.

The account-based approach outlined in this Article is a rational and feasible first step toward this goal. The account-based approach would recognize that some transborder commercial activities should occur permissibly, without the need for transaction-based export controls, [*378] while keeping in place the current transaction-based approach as an alternative appropriate for certain situations. The account-based approach could be implemented either through statutory changes or through regulatory amendments within the current statutory structure. Implementation via statute would be preferable, but this might be difficult given recent congressional inability to pass a modernized Export Administration Act–even one with fewer structural changes than suggested by the account-based approach.

Regardless of whether the account-based approach were implemented through statutory amendments or regulatory changes, it is possible that over time the account-based approach could subsume the regulatory structure of U.S. export controls on commercial items. If this were to occur, the application of U.S. export controls to individual transactions in effect would become the exception, not the rule- -just as end use and end user concerns largely have subsumed the EAR’s formal structure of export controls based on item classification and destination concerns.

FOOTNOTES:

n1 Establishing an Effective, Modern Framework for Export Controls by Means of the Export Administration Act of 2001: Hearing Before the Senate Comm. on Banking, Housing, and Urban Affairs, 107th Cong. 69 (2001) (statement of Hon. John J. Hamre, President and Chief Executive Officer, Center for Strategic & International Studies, and former Deputy Secretary of Defense).

n2 Cecil Hunt, U.S. Export Controls, in A.L.I.-A.B.A. COURSE OF STUDY MATERIALS, GOING INTERNATIONAL: FUNDAMENTALS OF INTERNATIONAL BUSINESS TRANSACTIONS 314 (Nov. 2000).

n3 50 U.S.C. app. 2401-2420 (2000).

n4 For general historical information concerning the Internet, see Internet Society, Internet Histories, at http://www.isoc.org/internet/history/ (last visited Nov. 13, 2003).

n5 See, e.g., IBM website, at www.ibm.com (offering various business solutions, including security and privacy, information storage, and infrastructure and systems management services–including provision of technology/training and software products as appropriate)

om the United States increased from US$ 448 billion in 1992 to US$ 729 billion in 2001, an increase of 60% (not accounting for inflation). See U.S. DEP’T OF COMMERCE, CENSUS BUREAU, FOREIGN TRADE DIVISION, A PROFILE OF U.S. EXPORTING COMPANIES (1992), available at http://www.census.gov/foreign-trade/aip/edbrel.html [hereinafter CENSUS 1992 REPORT]

n7 Figures published by the U.S. Department of Commerce, Bureau of Economic Analysis (hereinafter BEA), demonstrate that U.S. direct investment abroad in 1982 totaled US$ 207.8 billion. By 2002, this figure had risen to US$ 1,521 billion (both figures are on a historical cost basis, unadjusted for inflation). See Maria Borga, Direct Investment Positions for 2002: Country and Industry Detail, BEA SURVEY OF CURRENT BUS., July, 2003, at 22, available at http:// www.bea.doc.gov/bea/ARTICLES/2003/07July/ 0703DirectInvest.pdf. See Bureau of Economic Analysis, International Economic Accounts, at http:// www. bea.doc.gov/ bea/dil.htm# bop (last visited Jan. 16, 2004) for other BEA information concerning U.S. direct investment abroad. Employment figures also illustrate the increase in U.S. direct investment abroad. In 1982, majority-owned foreign affiliates of non-bank U.S. multinationals employed 6,640,200 employees. In 2000, this figure was 9,606,900 employees, an increase of nearly 45%. See Raymond J. Mataloni, Jr., U.S. Multinational Companies: Operations in 2000, BEA SURVEY OF CURRENT BUS., Dec. 2002, at 112, available at http:// www.bea.gov/bea/ ARTICLES/2002/12December/1202multinational.pdf.

n8 In 1992, imports of merchandise into the United States totaled over US$ 536 billion

n9 Figures published by BEA demonstrate that in 1982 foreign direct investment in the United States totaled US$ 124.7 billion. By 2002, this figure had risen to US$ 1,348 billion (both figures are on a historical cost basis, unadjusted for inflation). See Borga, supra note 7, at 22. Employment figures also illustrate the increase in foreign direct investment in the United States. In 1982, non-bank U.S. affiliates of foreign companies employed 2,448,100 employees. By 2000, the figure had risen to 6,429,200, an increase of more than 160%. See William J. Zeile, U.S. Affiliates of Foreign Companies: Operations in 2000, BEA SURVEY OF CURRENT BUS., Aug. 2002, at 156, available at http://www.bea.doc.gov/bea/ARTICLES/2002/08August/ USAffiliates.pdf. The increase is even more dramatic over the long term. In recent testimony to the Senate Committee on Finance, Pamela Olsen, Assistant Secretary for Tax Policy, U.S. Department of the Treasury, noted that cross border investment (both inbound and outbound) accounted for more than 11% of U.S. Gross Domestic Product in 2001, compared to approximately one percent forty years previously. See An Examination of U.S. Tax Policy and Its Effects on the Domestic and International Competitiveness of U.S. Owned Foreign Operations: Hearing Before the Senate Comm. on Finance, 108th Cong. (2003) (testimony of Pamela Olson, Assistant Secretary for Tax Policy, U.S. Department of the Treasury), available at http://www.treas. gov/press/releases/j s555.htm.

n10 According to U.S. Internal Revenue Service statistics, in U.S. Fiscal Year 2001, and again in Fiscal Year 2002, approximately 1.45 million U.S. taxpayers filed individual income tax returns and individual estimated income tax returns abroad (excluding returns filed in Puerto Rico). See INTERNAL REVENUE SERVICE, 2002 DATA BOOK 9 (Mar. 2003), at http://www.irs.gov/pub/irs-soi/02databk.pdf

n11 U.S. visa data show that in 2002 there were nearly 200,000 foreign national H-1B visas granted. See U.S. DEP’T OF HOMELAND SECURITY, OFFICE OF IMMIGRATION STATISTICS, 2002 YEARBOOK OF IMMIGRATION STATISTICS 94 (Oct. 2003) [hereinafter 2002 YEARBOOK], available at http:// www.immigration. gov/ graphics/shared/aboutus/statistics/TEMP02yrbk/temp2002.pdf. In 2001, this figure was 331,206. See id. at 96. An application for an H-1B visa must be sponsored by the foreign national’s U.S. employer. See id. at 95.

n12 U.S. demand for high technology workers currently exceeds the supply of workers available in the United States, thus resulting in recruitment of skilled foreign nationals for these positions. See WILLIAM A. ROOT & JOHN R. LIEBMAN, UNITED STATES EXPORT CONTROLS 11.1 (4th ed. 2000)

n13 See U.S. Export Administration Regulations, 15 C.F.R. pt. 746 (2003)

n14 See 15 C.F.R. 734.2(b), 772.1

n15 See 15 C.F.R. 734.2(b), 772.1.

n16 See 15 C.F.R. 734.2(b)(9)(B)(ii).

n17 50 U.S.C. app. 2401-2420 (2000).

n18 See, e.g., S. REP. NO. 107-10, at 5 (2001) (“The United States faces a different world since the last major revision of the Export Administration Act in 1985.”)

control.”) (statement of Sen. Bingaman)

n19 See 50 U.S.C. app. 2419.

n20 International Emergency Economic Powers Act, 50 U.S.C. 1701-1707.

n21 See, e.g., Majak Testimony, supra note 18

n22 See, e.g., William New, Action on Export-Control Bill Slips to Next Year, NAT’L J. TECH. DAILY, Dec. 12, 2001 (stating that prospects for passage of a new Export Administration Act in 2001 appear remote, and that “the Sept. 11 terrorist attacks likely will give added impetus to national security interests” in congressional review of the bill)

n23 See, e.g., Blumenauer Statement, supra note 18

n24 See generally sources cited supra notes 17, 20-21

n25 See 50 U.S.C. app. 2401-2402 (2000).

n26 See infra text accompanying notes 115-24 for a discussion of end use and end user concerns.

n27 See infra text accompanying notes 125-33, 202-03.

n28 As noted, this Article focuses on export controls on commercial articles under the EAA of 1979 and its implementing regulations, which govern the vast majority of U.S. exports. It does not address other, more limited U.S. export control statutes such as the Arms Export Control Act (AECA), 22 U.S.C. 2751-2796, which regulates the exportation of defense articles and related technology, or the Atomic Energy Act of 1954, 42 U.S.C. 2011-2297h-13, which imposes export-related controls on certain nuclear materials and activities. Export regulations promulgated pursuant to these statutes–namely, the International Traffic in Arms Regulations, 22 C.F.R. pts. 120-130 (2003), Export and Import of Nuclear Equipment and Material Regulations, 10 C.F.R. pt. 110, and Assistance to Foreign Atomic Energy Activities Regulations, 10 C.F.R. pt. 810–are also beyond the scope of this Article. Moreover, these more specific statutes and regulations reflect a different policy calculus than that which motivates the proposed amendments to the EAA of 1979, a statute that seeks to balance export promotion and export controls. For example, an account-based approach under a statute such as the AECA may not be warranted, regardless of the potential economic benefits, because the overriding goal of the AECA (unlike the EAA of 1979) is to restrain defense exports at the expense of commerce if necessary. See 22 U.S.C. 2751.

n29 U.S. CONST. art. I, 8.

n30 The primary statutes authorizing such delegations to the Department of Commerce are the EAA of 1979, 50 U.S.C. app. 2403, and the International Emergency Economic Powers Act (IEEPA), 50 U.S.C. 1701-1707.

n31 As explained above, the regulations promulgated pursuant to the EAA of 1979 have been continued in force pursuant to presidential executive orders issued under the IEEPA, 50 U.S.C. 1701-1707. See supra text accompanying note 20 and infra text accompanying notes 48-49.

n32 Export Control Act of 1949, ch. 11, 63 Stat. 7 (1949)

n33 Export Administration Act of 1969, Pub. L. No. 91-184, 83 Stat. 841

n34 See 50 U.S.C. app. 2402(2).

n35 See id. 2402(8).

n36 See id. 2402

n37 See ROOT & LIEBMAN, supra note 12, 14.1.1 (explaining the historical overlap between national security and foreign policy controls)

n38 See ROOT & LIEBMAN, supra note 12, 4.1.1. The EAA of 1979’s short supply controls are promulgated through the U.S. Export Administration Regulations, 15 C.F.R. pts. 730-774 (2003), and are explained in detail in part 754 of these regulations.

n39 See 50 U.S.C. app. 2402(8) (2000).

n40 See 50 U.S.C. app. 2402(2).

n41 Two commentators have summarized the EAA’s policy statements in section 2402 concerning the need to minimize controls on exports to mean that “the EAA says that controls should be used only as a last resort and, even then, only when necessary to further fundamental objectives.” ROOT & LIEBMAN, supra note 12, 4.1.

n42 The Department of Commerce makes modifications to the regulations promulgated under the EAA of 1979 on a regular basis, in an ongoing attempt to balance these interests. For examples of recent modifications to these regulations–some of which ease export control restrictions and some of which add or strengthen restrictions–see Computer Technology and Software, and Microprocessor Technology Eligible for Export or Reexport Under License Exception, 68 Fed. Reg. 60,891 (Oct. 24, 2003) (to be codified at 15 C.F.R. pts. 740, 774) (proposing to ease licensing requirements on exports of certain computer technology and related software and microprocessor technology)

n43 See 50 U.S.C. app. 2404(c), 2405(o).

n44 Export Administration Modification and Clarification Act of 2000, 50 U.S.C. app. 2419. This temporary renewal followed several unsuccessful attempts by Congress to pass a modern replacement statute for the EAA of 1979. See Corr, supra note 18, at 460 n.54. After the August 20, 2001 expiration of the renewed EAA of 1979, discussions have continued in Congress concerning how a new Export Administration Act should be structured, but no replacement statute has been passed. See sources cited supra note 19.

n45 See, e.g., Exec. Order No. 13,222, 66 Fed. Reg. 44025 (Aug. 17, 2001)

n46 Bureau of Industry and Security Export Administration Regulations, 15 C.F.R. pts. 730-774.

n47 See 15 C.F.R. pts. 730-774. Prior to April 2002, the Bureau of Industry and Security was named the Bureau of Export Administration. See Industry and Security Programs

n48 See supra text accompanying notes 44-45

n49 Exec. Order No. 13,222, 66 Fed. Reg. 44,025 (Aug. 17, 2001).

n50 15 C.F.R. 732.1(b)-(c).

n51 15 C.F.R. 732.1(c).

n52 15 C.F.R. 732.1(b)(1).

n53 15 C.F.R. 732.1(b)(2).

n54 15 C.F.R. 732.1(b)(3).

n55 15 C.F.R. 732.1(b)(4)-(5).

n56 15 C.F.R. 732.1(b), 732.1(d).

n57 See generally 15 C.F.R. 732.

n58 See 15 C.F.R. pt. 762.

n59 See, e.g., Sievert, supra note 18, at 104-05.

n60 ROOT & LIEBMAN, supra note 12, 6.4.2 (opining that requiring the exporter to classify items intended for export is a “reasonable requirement,” since “industry is more familiar with the technical details of specific commodities, software, or technology than government can be”).

n61 The term “dual use” describes those “items that have both commercial and military or proliferation applications.” 15 C.F.R. 772.1. In other words, the EAR applies to most items that are either wholly civilian in application or that could be used for military or proliferation applications but were not specifically designed or modified for such purposes. One example of a dual use item is a desktop computer. As a practical matter, the line between wholly civilian and dual use items has become blurred as a result of technological advances. In fact, the Department of Commerce’s Bureau of Industry and Security acknowledges that the term “dual use” is “used informally to describe items that are subject to the EAR.” See U.S. Dep’t of Commerce, Bureau of Industry and Security, What is a Commodity Jurisdiction Request, When and How Do I Submit One?, at http://www.bis.doc.gov/licensing/facts3.htm (last visited Nov. 12, 2003).

n62 15 C.F.R. 734.3(b)(3)

n63 15 C.F.R. 734.3(b)(1).

n64 15 C.F.R. 734.2(b)(4), 734.3(a)(3), 734.4.

n65 15 C.F.R. 734.3(a)(4).

n66 See 15 C.F.R. pt. 732 for a general overview of steps for applying the EAR.

n67 15 C.F.R. 772.1.

n68 Id.

n69 Id. The EAA of 1979 did not explicitly refer to software, but the Department of Commerce, in promulgating the Export Administration Regulations, clearly concluded that software was presumptively covered by the statute as a type of “good” or “technology.” Otherwise, there would be no software entries in the current EAR. In contrast, recent Export Administration Act legislation in Congress has referred expressly to software in its definitions section. See Export Administration Act of 2001, S.149, 107th Cong. 2(12)(B)(i) (2001) (including “source code” in the definition of the term “good”).

n70 15 C.F.R. 772.1.

n71 Id.

n72 Id.

n73 See 15 C.F.R. 734.3(b)(3).

n74 See 15 C.F.R. 734.4.

n75 See id.

n76 See 15 C.F.R. 734.4. The exceptions from this general rule are for certain high performance computers and encryption items. Id.

n77 See 15 C.F.R. 734.4(c).

n78 See 15 C.F.R. 734.4(a)-(b).

n79 See 15 C.F.R. pt. 734 supp. 2.

n80 See 15 C.F.R. 734.3(a)(3), 734.4.

n81 See 15 C.F.R. 742.1(d).

n82 In addition, in some cases the de minimis level for such software or technology might be zero if they contained certain U.S.-origin encryption software or technology. See 15 C.F.R. 734.4(a)-(b).

n83 15 C.F.R. 734.2(b)(1) (emphasis added)

n84 50 U.S.C. app. 2415(5)(A).

n85 See Berne C. Kluber, Global Distributions: The Effect of Export Controls, 23 HOUS. J. INT’L L. 429, 436-37 (2001).

n86 15 C.F.R. 734.2(b)(9).

n87 15 C.F.R. 734.2(b)(4)-(5) (emphasis added)

n88 See 15 C.F.R. 734.2(b).

n89 “Source code” software is software not in “object code”–that is, not in machine-executable form. See 15 C.F.R. 772.1. “Object code,” which is machine-executable only, is excluded from the deemed export rule. See 15 C.F.R. 734.2(b)(2)(ii), 772.1.

n90 See 15 C.F.R. 734.2(b)

n91 See 15 C.F.R. 734.2(b)(4)-(5)

n92 See 15 C.F.R. 734.2(b)(2)(ii)

n93 See 15 C.F.R. 734.2(b)(5)

n94 See 15 C.F.R. 734.2(b)

n95 See ROOT & LIEBMAN, supra note 12, 11.1. It also should be noted that the statutory basis for the deemed export rule is somewhat questionable. The EAA of 1979’s definition of the term “export” includes the “transfer to any person of goods or technology either within the United States or outside of the United States with the knowledge or intent that the goods or technology will be shipped, transferred, or transmitted to an unauthorized recipient.” 50 U.S.C. app. 2415(5)(C) (2000) (emphasis added)

n96 See 15 C.F.R. pt. 732.

n97 See 15 C.F.R. pt. 774 supp. 1.

n98 See id.

n99 See 15 C.F.R. pt. 732. For general guidance posted by the Department of Commerce’s Bureau of Industry and Security on its official website, see U.S. Dep’t of Commerce, Bureau of Industry and Security, ECCN Questions and Answers, at http:// www.bis.doc.gov/Licensing/Do_I_NeedAnECCN.html (last visited Nov. 11, 2003).

n100 See Brian H. Nilsson, “Catch All” Controls: The United States Perspective, Speech Before the International Conference on Export Controls at Oxford, England (Sept. 28, 2000), available at http:// www. bis.doc.gov/news/archive2000/NilssonsOxfordSpeech.htm (noting that Department of Commerce changes in the export control system led to a dramatic drop in license applications)

n101 See Interagency Review of Dual-Use and Munitions Export Licensing Processes: Hearing Before the Senate Comm. on Governmental Affairs, 106th Cong. 122-23 (1999) (statement of Lawrence W. Rogers, Acting Inspector General, Department of the Treasury, Office of Inspector General), available at http://govtaff.senate.gov/062399_rogers_testimony.htm

n102 See 15 C.F.R. 732.1(b)(1).

n103 See 15 C.F.R. 740.4, 740.9, 740.10, 740.13, 740.14.

n104 See 15 C.F.R. 742.15

n105 See 15 C.F.R. 740.17.

n106 See id. Even those encryption items that generally do not require export licenses under the EAR typically are subject to notification and review requirements prior to export (that is, notification generally must be submitted to Commerce prior to export of such items). See 15 C.F.R. 742.15(b).

n107 See 15 C.F.R. 742.15(a)

n108 See Revisions and Clarifications to Encryption Controls in the Export Administration Regulations, 67 Fed. Reg. 38,855, 38,855-56 (June 6, 2002) (codified at 15 C.F.R. pts. 732-774).

n109 15 C.F.R. 752.1(a)(1).

n110 15 C.F.R. 752.2.

n111 See 15 C.F.R. 752.3, 752.4.

n112 15 C.F.R. 752.5.

n113 15 C.F.R. 752.11.

n114 15 C.F.R. 752.12.

n115 See 15 C.F.R. 736.2(b)(5)

n116 See 15 C.F.R. pt. 732 supp. 3

n117 See 15 C.F.R. pt. 732 supp. 3

n118 See 15 C.F.R. pt. 732 supp. 3

n119 See 15 C.F.R. pt. 764 supp. 1

n120 See 15 C.F.R. pt. 744 supp. 4.

n121 See id.

n122 See U.S. Dep’t of Commerce, Bureau of Industry and Security, Unverified List (July 25, 2003), at http:// www. bis.doc.gov/Enforcement/UnverifiedList/unverified_parties.html [hereinafter Bureau of Industry and Security, Unverified List]

n123 See Bureau of Industry and Security, Unverified List

n124 See Nillson, supra note 100. One commentator has pointed out that night vision goggles and Global Positioning System (GPS) units, which until recently were considered military items subject exclusively to Department of State export controls, are now being sold as commercial articles by retailers such as L.L. Bean. See R. Aylan Broadbent, U. S. Export Controls On Dual-Use Goods and Technologies: Is the High Tech Industry Suffering?, 8 CURRENTS: INT’L TRADE L.J. 49, 52 (1999)

gration of certain GPS devices from Department of State export control to Department of Commerce export control).

n125 See S. REP. NO. 107-10, at 7 (2001) (“Because the U.S. is not the sole supplier of most dual-use technologies, the need for multilateral agreement among supplier nations is critical to the success of export control mechanisms.”)

n126 See Juster-Bunton Oxford Speech, supra note 125

n127 The websites of the multilateral organizations or arrangements in which the United States participates provide language to their stated aims of harmonizing national legislation. See, e.g., The Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-Use Goods and Technologies, Welcome to the Wassenaar Arrangement, at http://www.wassenaar.org/welcomepage.html (last visited Feb. 11, 2004) (“All measures with respect to the [Wassenaar] Arrangement are taken in accordance with national legislation and policies . . . .”)

n128 See Carol George et al., International Trade Aspects of Information Technology, in ENCYCLOPEDIA OF INFORMATION TECHNOLOGY LAW 4023 (Stephen Saxby ed., 1990-2003)

Netherlands, New Zealand, Norway, Poland, Portugal, Republic of Korea, Romania, Russian Federation, Slovakia, Spain, Sweden, Switzerland, Turkey, Ukraine, United Kingdom, and the United States. See id.

n129 See Corr, supra note 18, at 450-51.

n130 See George et al., supra note 128, at 4023.

n131 The CWC and Australia Group aim to prevent the development, production, or use of chemical weapons and to control their export/reexport. See Organisation for the Prohibition of Chemical Weapons website, at http://www.opcw.org/ (last visited Nov. 12, 2003)

n132 See December 2002 Wassenaar Arrangement Plenary Agreement Implementation, 68 Fed. Reg. 68,975 (Dec. 10, 2003) (to be codified at 15 C.F.R. pts. 740, 743, 772, 774) (amending the EAR’s Commerce Control List to implement Wassenaar provisions)

n133 See sources cited supra notes 125-26 and accompanying text.

n134 See supra text accompanying notes 29-30.

n135 See 15 C.F.R. 764.3(b) (2003). Sections 11(a) and 11(b) of the EAA of 1979 provided for even stricter penalties for willful violations: maximum fines of the greater of $ 50,000 or five times the export’s value, and/or imprisonment up to five years

n136 See 15 C.F.R. 764.3(b) (2).

n137 See 15 C.F.R. pt. 764 supp.1 (setting forth standard language of a denial order)

n138 See 15 C.F.R. 764.3(a). Section 11(c)(1) of the EAA of 1979 actually provided for maximum penalties of $ 10,000, or in some cases $ 100,000 (where violations concerning national security controls were concerned). 50 U.S.C. app. 11(c)(1). Civil penalties under IEEPA, however, are limited to $ 11,000 per violation ($ 10,000 per violation adjusted upward under the Federal Civil Penalties Inflation Adjustment Act of 1990). See 50 U.S.C. 1701, 1705

n139 See, e.g., 15 C.F.R. 764.2(e) (“No person may order, buy, remove, conceal, store, use, sell, loan, dispose of, transfer, transport, finance, forward, or otherwise service, in whole or in part, any item exported or to be exported from the United States, or that is otherwise subject to the EAR, with knowledge that a violation of the EAA, the EAR, or any order, license or authorization issued thereunder, has occurred, is about to occur, or is intended to occur in connection with the item.”) (emphasis added)

n140 See 15 C.F.R. 762.1, 762.2.

n141 See 15 C.F.R. 762.6.

n142 See 15 C.F.R. 762.4.

n143 See 15 C.F.R. 752.12

n144 The traditional U.S. government emphasis on physical exports is underscored by the fact that the U.S. Census Bureau, in gathering export statistical data, only requires the submission of Shipper’s Export Declarations (or their electronic equivalent, the Automated Export System filing) for physical export shipments and specifically excludes non-physical export activities from export reporting requirements. See Foreign Trade Statistics Regulations, 15 C.F.R. 30.1(d). The Shipper’s Export Declaration (or Automated Export System filing) is an official statement to the U.S. government concerning physical exports. See 15 C.F.R. 30.4(a).

n145 See supra text accompanying notes 93-94.

n146 See 15 C.F.R. pt. 732.

n147 According to U.S. Census Bureau statistics, in 2001 over US$ 729 billion worth of merchandise was exported from the United States, and more than 238,000 entities were identified as exporters. CENSUS 2000-2001 REPORT, supra note 6, at 3. In comparison, in 1992 US$ 448 billion worth of merchandise was exported from the United States, and more than 112,000 entities were identified as exporters. CENSUS 1992 REPORT, supra note 7. These figures represent a 60% increase (not accounting for inflation) in the value of exports over this 9-year period and a 47% increase in the number of exporters. See id.

n148 See U.S. Policy Regarding High-Performance Computer Exports: Hearing Before the House Comm. on Armed Services, 106th Cong. 118-19 (1999) (testimony of William A. Reinsch, Under Secretary for Export Administration, Department of Commerce) (“Global demand for computers has increased rapidly, in part driven by the growth of the Internet. . . . While the U.S. and Japan remain the two countries with the ability to produce high-end [High Powered Computers, or HPCs] . . . in commercial quantities, the technology for producing HPCs . . . is widely diffused around the world . . . [with] 170 computer manufacturers located around the world who account for three quarters of global computer production. More than 120 of these manufacturers are outside of the United States.”)

n149 For example, an Internet search in January 2004 using the popular search engine Google (www.google.com) for “software and technology products” turned up a plethora of websites touting software and technology, both as development tools and as final-form articles of commerce. See, e.g., Vernier Software & Technology website, at http://www.vernier.com/products.html (offering data collection software products)

Microsystems, Products, at http://www.sun.com/products/ (offering application and operating systems software and related information technology services).

n150 Charles L. Evans, Comment, U.S. Export Control of Encryption Software: Efforts to Protect National Security Threaten the U.S. Software Industry’s Ability to Compete in Foreign Markets, 19 N.C.J. INT’L L. & COM. REG. 469, 476 (1994) (citing David A. Wormser, Export License for Computer Software, in COPING WITH U.S. EXPORT CONTROLS 411 (1985) (PLI Computer Law & Practice Course Handbook Series No. 353))

n151 See Daniel J. Gifford, Java and Microsoft: How Does the Antitrust Story Unfold?, 44 VILL. L. REV. 67, 112 (1999) (“A lucrative sector of the server/browser market is the intranet, the private networks established by business firms and groups of corporate affiliates for internal communication.”).

n152 See P. Greg Gulick, E-Health and the Future of Medicine: The Economic, Legal, Regulatory, Cultural, and Organizational Obstacles Facing Telemedicine and Cybermedicine Programs, 12 ALB. L.J. SCI. & TECH. 351, 353 (2002) (noting that Internet sales of merchandise were expected to exceed $ 100 billion in business to consumer sales by 2002, and business to business Internet transactions were expected to reach $ 1.3 trillion in 2003)

n153 See supra text accompanying notes 16 and 86.

n154 See Borga, supra note 7, at 22. These figures are on a historical cost basis, unadjusted for inflation.

n155 See id. These figures are on a historical cost basis, unadjusted for inflation.

n156 See KATHLEEN WALSH, FOREIGN HIGH-TECH R&D IN CHINA: RISKS, REWARDS, AND IMPLICATIONS FOR U.S.-CHINA RELATIONS 29, 42 (2003), available at http: //www. stimson. org/techtransfer/pdf/FinalReport.pdf.

n157 The common nature of outsourcing is illustrated by a hypothetical scenario presented in a recent American Bankruptcy Institute Journal article examining how to restructure a company in dire straits by, among other things, outsourcing design and production activities to overseas locations. See Frank Lazowski, Global Sourcing and Distressed Companies, AM. BANK. INST. J., Dec. 2003, LEXIS, Lexis Library, American Bankruptcy Institute Journal File

n158 See sources cited supra notes 10-12.

n159 See sources cited supra note 12.

n160 See ROOT & LIEBMAN, supra note 12, 11.1.

n161 See discussion supra Part II.B

n162 See 15 C.F.R. 734.4, 742.1(d).

n163 For an overview of the relevant regulatory aspects of the EAR that result in the effects for this and the following examples, please refer to Part II.B of this Article, supra.

n164 The EAR’s deemed export rule employs the “home country” concept (discussed above in the text accompanying notes 93-94) with no consideration given to whether the exporter is aware (or has reason to know) of the foreign national’s home country. See 15 C.F.R. 734.2(b) (2003)

n165 See Sievert, supra note 18, at 104.

n166 See supra text accompanying notes 100-01

n167 See Sievert, supra note 18, at 104-09

n168 See, e.g., Jere W. Morehead & David A. Dismuke, Export Control Policies and National Security: Protecting U.S. Interests in the New Millennium, 34 TEX. INT’L L.J. 173, 180 (1999)

n169 See Administration and Enforcement of U.S. Export Control Programs: Hearings Before the Subcomm. on Oversight of the House Comm. on Ways and Means, 102d Cong. 28, 520 (1991) (question posed by Rep. Pickle to Kenneth A. Cutshaw, Deputy Assistant Secretary for Export Enforcement, U.S. Department of Commerce).

n170 Vago Muridian, Better Export Controls Needed to Check Dual-Use Technologies, DEF. DAILY, Jan. 22, 1998, at 8, available at LEXIS, Nexis Library, Defense Daily File.

n171 See id.

n172 Jeff Gerth & Eric Schmitt, Chinese Said to Reap Gains in U.S. Export Policy Shift, N.Y. TIMES, Oct. 19, 1998, at A14.

n173 See, e.g., Hiestand, supra note 161, at 681

U.S., Other Wassenaar Nations to Begin Talks on Easing Computer Export Controls, 16 INT’L TRADE REP. 266 (1999).

n174 See sources cited supra note 100.

n175 Press Release, Senate Banking Committee, Gramm Hails Passage of Export Administration Act (Sept. 6, 2001), available at http://banking.senate.gov/gramm/0906eaa.htm (discussing passage of Export Administration Act of 2001, S. 149)

n176 For example, both bills provided for a Commerce Control List and export controls based on discrete transactions. See S. 149, 107th Cong. 2, 101 (2001)

n177 See Sievert, supra note 18, at 104-06.

n178 See id. at 104-05.

n179 See id. at 105.

n180 See id.

n181 See id. Presumably the reference to destination and end use is intended to mean the same destination, end use and end user.

n182 See id.

n183 As noted previously, Root and Liebman have properly observed that “industry is more familiar with the technical details of specific commodities, software, or technology than government can be.” ROOT & LIEBMAN, supra note 12, 6.4.2.

n184 The export compliance website maintained by Microsoft Corporation illustrates this point. See Microsoft, Exporting Microsoft Products, at http://www.microsoft.com/exporting/ (last updated Dec. 17, 2003). The Microsoft Corporation website contains a continually-updated list of Microsoft products and their export classifications. A government agency likely would be hard pressed to review new company products in a timely manner and might resort to cursory classification reviews that impose overly strict export controls on these items.

n185 See 50 U.S.C. app. 2401-2402 (2000).

n186 15 C.F.R. 750.7(g) (2003).

n187 Special Comprehensive Licenses under the EAR are currently valid for four years. See 15 C.F.R. 752.9(a).

n188 See 15 C.F.R. 740.13, 740.17, 742.15

n189 Vilfredo Pareto, an Italian economist, hypothesized that twenty percent of a given population generally holds eighty percent of its wealth, a proposition that has been broadly interpreted to mean that a small percentage of a population (twenty percent) is responsible for a large percentage (eighty percent) of a given result. This has been applied broadly to a variety of situations, including workforce efficiency, cash management and bankruptcy, library science, and control of automobile emissions. See, e.g., Pareto’s Principle: The 80-20 Rule, at http://www.public.asu.edu/ dmuthua/pareto’s_principle.html (last visited Mar. 2, 2004)

n190 50 U.S.C. 2411(e).

n191 50 U.S. C. 1701-1707.

n192 See discussion supra Parts III.B, V.A.

n193 See 15 C.F.R. pt. 732 (2003).

n194 See License Exceptions, 15 C.F.R. pt. 740.

n195 One possible answer is that this approach gives the Department of Commerce jurisdiction to pursue enforcement actions in case violations occur and thus provide for both specific deterrents for violators and general deterrents for other parties. This assumes, however, that exporters generally understand the extent to which the EAR apply to their non-physical export activities. Given the complexity of the EAR’s rules, this assumption is not necessarily a safe one to make.

n196 See Hunt, supra note 2, at 314.

n197 Information concerning the export control regimes for many Wassenaar members–including their item classification schemes for commercial exports–are available through the Wassenaar Arrangement’s

website. See The Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-Use Goods and Technologies, Contacts and Information on National Export Control Policies, at http://www.wassenaar.org/secadmin/contacts.htm#UK (last visited Mar. 6, 2004).

n198 See, Kimm Groshong, Small World, Big Possibilities: Nanoscience Zooms in on Tiny Stuff of Tomorrow’s Reality, MILWAUKEE J. SENTINEL, Aug. 10, 2003, available at http://www.jsonline.com/alive/news/aug03/161269.asp

n199 See Robert Spiegel, Get “Smart”: Electronic Product Code Tags Could Provide the Visibility Shippers Have Been Seeking for Real-Time Control over Inventory in Transit, LOGISTICS MANAGEMENT, July 2003, at 65.

n200 See discussion supra note 61.

n201 See 15 C.F.R. pt. 744 (2003)

n202 It is also worth noting that recent Export Administration Act legislation considered by Congress contained provisions to strengthen U.S. involvement in multilateral export control regimes. See S.149, 107th Cong. 501 (2001)

n203 See 15 C.F.R. 740.16.

n204 See 15 C.F.R. pt. 738. For a list of the current Wassenaar members, see the Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-Use Goods and Technologies, What is the Wassenaar Arrangement?, at http://www.wassenaar.org/ (last visited Feb. 11, 2004). The ten countries scheduled for accession to the European Union on May 1, 2004 are Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, the Slovak Republic, and Slovenia. See European Commission, Enlargement, at http://europa.eu.int/comm/enlargement/enlargement.htm (last visited Nov. 17, 2003).

n205 See Council Regulation 1334/2000, 2000 O.J. (L 159) 1 (stating that “dual-use items . . . should be subject to effective control when they are exported from the Community,” and establishing a Community General Export License for exports of dual use items to certain destinations, including the United States) (emphasis added).

n206 The liberal U.S. export licensing policy toward Canada is illustrated by Supplement 1 to Part 738 of the EAR–the EAR’s “Country Chart”–which shows that the United States imposes fewer destinationbased controls on exports to Canada than to any other country (including EU members). See 15 C.F.R. pt. 738 supp. 1. The liberal Canadian export licensing policy toward the United States is described by the Canadian Government as a waiver of export permit (license) requirements for nearly all goods on Canada’s Export Control List, pursuant to a bilateral agreement with the United States. See Paul D. Burns & Isabelle Girard, The Canadian Export Controls Regime and the Controlled Goods Program, 5 CAN. INT’L LAW. 119

(2003)

n207 See 15 C.F.R. 30.58.

n208 See CENSUS 2000-2001 REPORT, supra note 6, at 21 (listing total U.S. commodity exports to Canada as over US$ 163 billion)

n209 Ann K. Wooster, Validity, Construction, and Application of North American Free Trade Agreement and Implementing Statutes and Regulations, 183 A.L.R. FED. 1 2.a. (2004).

n210 For example, the United States and Canada have implemented an expedited release program for cross-border shipments called “Free and Secure Trade,” or “FAST.” See U.S. Dep’t of Homeland Security, Customs and Border Protection, U.S./Canada Border Highway Carriers/Free and Secure Trade (FAST) Program, at http:// www.cbp.gov/ xp/ cgov/ import/ commercial_enforcement/ ctpat/ fast/us_canada/highway_carriers/fast_hi ghway.xml (last visited Nov. 11, 2003).

n211 It should be noted that while Mexico is also a member of NAFTA, U.S. export controls on exports to Mexico remain somewhat stricter than on exports to Canada. See 15 C.F.R. pt. 738 (2003).

n212 See Presidential Proclamations Implement Chile, Singapore Free Trade Agreements, 21 INT’L TRADE REP. 49 (2004)

n213 See Jamil Jaffer, Development, Strengthening the Wassenaar Export Control Regime, CHI. J. INT’L L. 519, 521-23 (2002).