The Economic Consequences Of Export Controls

Export controls make sense to those who are concerned about the United States losing its technological edge over potential adversaries because America depends upon its technological edge to protect its national security. Yet it has become increasingly evident that export controls have significant economic consequences.

Thus, at the heart of the debate over export controls is maintaining the proper balance between the need to control critical technology and the need to capture and maintain overseas markets.

How much is too much when it comes to controlling technology, and what price do we pay for denying our goods to potential customers? Is that price too high? Is the Cold War model of export controls, which seemed to provide leverage in our struggle with the Soviet Union, still the proper model in an age of terrorism and non-state adversaries?

Those questions are being asked by a new coalition, the "Coalition for Security and Competitiveness," formed by the major trade associations most affected by export controls. In addition to AMT, among the associations represented are the National Association of Manufacturers, the U.S. Chamber of Commerce, the Aerospace Industries Association, the Electronic Industries Alliance, and the National Foreign Trade Council.

In a letter to President Bush, we laid out the reason for the new coalition: "It is essential that our system of controlling U.S. technology exports is modernized in a way that enhances our ability to counter rapidly and decisively evolving security threats, and to maintain our global technological leadership and industrial competitiveness."

As the readers of this column are only too painfully aware, the U.S. export control system is frequently used by our competitors as a compelling reason for not buying U.S. products. They argue that the purchase of the non-U.S. product won't subject the buyer to the vagaries and delays that are almost certain to result from the U.S. regulatory system.

EADS (the European Airbus consortium) actually advertises one of its defense products by noting on its website that the product in question is "ITAR-free," meaning that it is free of any component that could give the U.S. Government jurisdiction over it. ITAR (the International Traffic in Arms Regulations) is the sister body of regulations to the EAR (the Export Administration Regulations). Since the U.S. Government claims extraterritorial jurisdiction over its technology, even when it is incorporated into foreign products, it is obvious what EADS is selling—freedom from the long arm of Uncle Sam.

This is not an isolated incident. It is a trend that must be reversed, which is why the coalition will attempt to convince the Administration that the export control system needs serious modernization. Controls of both munitions and dual-use products need to be made more efficient, more user-friendly, and, most importantly, more predictable.

When potential customers shy away from American high technology products to avoid the hassle and uncertainties of the U.S. export control regulatory system, we have to ask ourselves if the current system is, on balance, protecting our national security.

The Administration needs to be reminded that in today's global marketplace, there is usually an alternative to a U.S. product. We don't dominate the economic marketplace, and, in many cases, the defense marketplace, technologically as we once did. If we deny—or even unduly delay—a license application for a sale to a Chinese or an Indian end-user, there is almost always a foreign competitor ready and able to step in with a comparable product that is hassle-free and available quickly. And, in a post-CoCom world, in which the U.S. Government no longer has a veto over our allies' exports, there is nothing that we can do about our allies undercutting our self-imposed restraint.

The positive benefits of U.S. products remaining competitive and attractive ought to be self-evident to the Administration. Hopefully, industry and government can work together to modernize our export control system in a way that benefits both economic and national security interests.