dependent agency or special agency within the Department of Defense to administer the export control program is not necessary.

Two, the Department of Commerce should, upon the request of U.S. exporters, issue a binding ruling on proposed export transactions similar to the rulings issued by the Department of Treasury in the tax area.

Three, the Office of U.S. Trade Representative should participate in the interagency review of decisions to impose export controls.

Four, the Export Administration Act should be amended to provide for an administrative hearing prior to the imposition of a sanction or penalty against a company or individual charged with violating the act.

Mr. BONKER. I notice you made no reference to the Customs Service.

Do you not have an opinion on their role in enforcement?

Mr. KAHLER. We have not, Mr. Chairman, in the development of our Business Roundtable and ECAT papers made any specific comments about the Customs Service.

Mr. Chairman, I hope these recommendations will be of value in the course of your review of the Export Administration Act. As I have said, they are substantially elaborated in the supplemental documents we are providing the subcommittee.

We believe there is a compelling need to return a degree of consistency and predictability to the U.S. export administration process. We are committed to cooperating with you to develop workable solutions for the difficult problems you are confronting.

Thank you very much for your interest.

[Mr. Kahler's prepared statement follows:]

PREPARED STATEMENT OF H. RICHARD KAHLER, MANAGER OF GOVERNMENTAL AF-
FAIRS, CATERPILLAR TRACTOR Co., REPRESENTING THE EMERGENCY COMMITTEE FOR
AMERICAN TRADE, AND THE BUSINESS ROUNDTABLE

Thank you, Mr. Chairman:

I am H. Richard Kahler, Manager of Governmental Affairs, Caterpillar Tractor
Co., which is an active member of the Business Roundtable and the Emer-
gency Committee for American Trade. I am pleased to be here today to
deliver testimony on behalf of both organizations.

My remarks today will focus on Executive branch authority under the
Export Administration Act to impose foreign policy controls and national
security controls, and on the administration of such controls. In
addition, I'd like to discuss several specific legislative recommen-
dations. I will not address issues related to short supply controls, the
antiboycott provisions of the Export Administration Act or the President's
international emergency economic powers.

U.S. international economic policies historically have sought to expand
international trade and investment. They have been generally successful.
Yet our share of world exports has been declining sharply. The decline
is in large part due to the capriciousness of United States export
control policies which brand American businesses as unreliable suppliers,
investors and licensors.

This is contrary to the intent of Congress. In passing the Export
Administration Act of 1979, Congress expressed its desire to "emphasize
the importance of exports to the United States economy and confine use
of export control authority to instances where controls are essential.'
This direction is reflected in Section 3 (10) of the Act which declares
it is "the policy of the United States that export trade by United
States citizens be given a high priority and not be controlled except
when such controls (A) are necessary to further fundamental national
security, foreign policy, or short supply objectives, (B) will clearly
further such objectives, and (C) are administered consistent with basic
standards of due process.

Congress instituted further significant innovations in the Export
Administration Act of 1979. Unlike earlier versions of the Act, the
1979 action separates foreign policy controls from national security
controls and applies different criteria and procedures to each. The
foreign policy controls include several provisions designed to limit
their use. Among those are:

A requirement that American industries and Congress be
consulted prior to the imposition of controls.

A requirement that certain criteria (including the likely
effect of the controls on the United States' export per-
formance, international competitiveness, and reputation as a
supplier of goods and technology) be considered before
controls are imposed.

A general limitation based on foreign availability.

A requirement that a report be submitted to Congress upon
the imposition of controls and annually on the export control
program in general.

A provision mandating foreign policy controls expire auto-
matically after one year unless extended by the President.

These provisions, together with the Act's policy declarations, manifest a strong Congressional intent to limit the use of export controls to: (1) those rare circumstances where they are uniquely effective in furthering a fundamental foreign policy objective of the United States; and (2) instances where their benefits outweigh the severe impact on domestic economic interests.

Unfortunately, that intent has often been ignored. The last two Administrations have not only resisted the Congressional call to limit the imposition of foreign policy export controls but have expanded the

-

use of those controls to an unprecedented degree.

We recognize the basic need for the Executive to retain the authority to impose foreign policy export controls. We acknowledge that instances will airse which beg prudent use of controls in the pursuit of welldefined and balanced foreign policy concerns. Nothing in the comments which follow is designed to undermine the Executive's ability to respond in appropriate situations. However, our comments and recommendations are prompted by the need to place reasonable constraints on the use of such controls.

In the recent past, the U.S. government has imposed or extended controls on a wide array of exports. These range from oil and gas equipment for construction of the Trans-Siberian pipeline to stuffed animals for the Moscow Olympics. Export restrictions have been imposed without adequate consideration of their likely effectiveness, the available alternative courses of action, or the damage inflicted on the economy.

Instead of considering export controls a foreign policy control weapon of last resort, our government has increasingly used export control as the opening shot. In so doing, the United States has damaged its own commercial interests and had little or no impact on target countries.

-

Controls must be imposed on a multilateral basis to be effective. Virtually all products manufactured by American companies --even those involving sophisticated technology - are available from many foreign competitors. Yet other countries do not usually support major U.S. foreign policy control sanctions. Unilateral controls imposed by the United States succeed only in diverting important export business to major U.S. competitors.

For U.S. exporters, lost sales translate into reduced production, profits, and reinvestment; for the employees of these firms, they mean reduced wages or increased unemployment. For government at all levels federal, state and local mean a loss of tax revenue and increased unemployment and social costs.

U.S. international political relationships and the rules governing international trade and investment are also adversely affected by the

unilateral application of foreign policy export controls. The extra territorial application of United States law to prevent the re-export of U.S. products by unrelated foreign companies, and even the export of foreign-made products by overseas subsidiaries of licensees of United States companies, has created resentment in foreign capitals. It has also caused our trading partners to counteract what they regard as an infringement of their economic sovereignty.

The ineffectiveness of foreign policy controls, the harm they cause
American economic interests and the availability of alternative courses
of action argue strongly for limitations on the President's authority to
impose foreign policy controls. In spite of clear Congressional intent,
existing procedures and limitations have proven to be inadequate.
result, we propose that the following general principles and recommen-
dations be reflected in the Export Administration Act as amended in
1983.

As a

Two principles should be the cornerstones for reforming the Act.
(1) The President should impose export controls only in the most
extraordinary circumstances to further significantly fundamental
foreign policy objectives.

(2) Stronger safeguards are required to prevent the excessive and
arbitrary use of the President's power to impose foreign policy
export controls.

These principles are supplemented by a set of specific recommen-
dations which are subscribed to by both the Business Roundtable
and the Emergency Committee for American Trade. We believe their
adoption will refocus attention on the importance of exports to our
economy, the severe costs of imposing foreign policy export controls,
and the need for multilateral cooperation to make controls effective
while maintaining the President's flexibility in the conduct of
foreign policy.

1.

2.

A series of specific conditions must be met before unilateral foreign policy export controls can be imposed. The existing criteria would be strengthened and new criteria added so that the President would be required to make a more compelling showing of need, effectiveness, economic impact and foreign unavailability.

The procedures required to be followed prior to the imposition
of export controls for foreign policy purposes should be made
more stringent especially with respect to (a) consultations
with Congress and the business community and (b) the submission
to Congress of detailed reports evidencing that each of the
criteria established in the Export Administration Act have
been met. Any controls imposed in violation of the Act's
requirements should be automatically invalidated and held
unenforceable.

3.

4.

5.

Export controls for foreign policy purposes should not have retroactive application. The principle of "sanctity of contract" in international transactions should be preserved except in times of declared national emergency and war.

Export controls for foreign policy purposes should not be
applied extraterritorially.

All export controls for foreign policy purposes should expire after 180 days, unless extended by the President. Extension of controls should be permitted only if the President follows the same procedures required to initiate controls.

National security export controls involve different problems. Exports, to adversarial regimes, of goods or technology that would make a significant contribution to the military potential of those countries profoundly affects the national interest and should be controlled. Yet, national security controls applied to goods or technologies not militarily critical work only to disadvantage United States economic interests and do not provide a countervailing benefit to national security. The challenge is how to focus the national security controls mechanism on only those goods and technology that need to be controlled for national security purposes.

The present system of national security controls does not provide that critical focus. The list of controlled items includes numerous products and technical data that are either available from foreign competitors, are militarily insignificant, or both. national security controls needlessly costs the United States Government This overly broad application of and domestic industries millions of dollars in administrative costs each year. Moreover, the delays and uncertainties involved in obtaining validated licenses lead to lost export orders and distrust of American businesses as reliable suppliers. Where the United States imposes controls on goods or technologies that are not controlled by other countries, the present licensing system needlessly handicaps American exporters as they compete for worldwide business.

A recent study by the General Accounting Office (GAO) highlights these problems. According to the study the government carefully reviewed less than 6% of the more than 65,000 export license applications for items controlled for national security reasons in fiscal year 1981. report concluded that the licensing system "is more a paper exercise than a control mechanism."

The

We agree with the GAO findings. The present control system covers many more items than necessary to protect the national security interests of the United States. We propose that the following principles and recommendations be incorporated in the Export Administration Act enabling American businesses to export more freely but without jeopardizing national security.

Two principles should guide reform of the national security controls section of the Export Administration Act.